COMPILATION OF BAR QUESTIONS AND SUGGESTED ANSWERS UNDER

COMMERCIAL LAW (INSURANCE LAW)

SUBMITTED BY:
CLASS 4-E, SCHOOL YEAR 2019-2020
SAN BEDA UNIVERSITY, COLLEGE OF LAW

SUBMITTED TO:
ATTY. TIMOTEO B. AQUINO
 Henson, Jr. vs. UCPB General Insurance Co., Inc.

G.R. No. 223134

August 14, 2019

Insurance Law – Subrogation

Relevant Facts:

National Arts Studio and Color Lab (NASCL)leased a portion of the ground floor
and the entire second floor of the building owned by Henson. NASCL made renovation
with the building’s piping assembly which resulted to a water leak on May 9, 2006 in the
building that caused damage to Copylandia’s equipment. The equipment were insured
with UCPB. On November 2, 2006, the parties settled for the amount of P1.3M. This
resulted in UCPB’s subrogation to the rights of Copylandia over all claims and demands
arising from the said incident. On May 20,2010, UCPB, as subrogee, demanded from
NASCL for the payment of the claim, but to no avail. UCPB field a complaint for damages
against NASCL.

Sometime in 2010, Henson transferred the ownership of the building to Citrinne

Holdings, Inc. (CHI) where he is a stockholder and President. On October 6, 2011, UCPB
filed an amended complaint impleading CHI as a party-defendant. On April 21, 2014,
UCPB files a motion to implead Henson instead of CHI as party-defendant. CHI opposed
the motion on the ground of prescription, arguing that since UCPB’s cause of action is
based on quasi-delict, it must be brought within 4 years from its accrual on May 9, 2006,
barring UCPB from proceeding against CHI.

Issue relevant to Commercial Law: Does the cause of action of UCPB prescribe in 4
years?

Held: No. Applying the August 15, 2013 case of Vector Shipping Corp. v. American Home
(Vector) where the Supreme Court ruled that where an insurance company has been
subrogated to the rights of the insured against the wrongdoer, the insurer’s cause of
action shall be based upon an obligation created by law under Article 1144 of the Civil
Code which provides that such action shall be brought within 10 years from the time the
cause of action accrues – upon payment of the insurance claim by the insurer.
 In this case, the damage happened on May 9, 2006, the rights of Copylandia were
transferred to UCPB on November 2, 2006, the demand was made on May 20, 2010 and
thereafter filed it complaint. Thus, it is still within the 10-year prescriptive period as
explained in the Vector case.

However, the SC in the case at bar, explained that the Court in the Vector case
failed to discern that no new obligation was created between the insurer and the insured
for the reason that the subrogee only steps into the shoes of the subrogor; hence, the
subrogee-insurer only assumes the rights of the subrogor-insured based on the latter’s
original obligation with the debtor. It is the subrogation of rights between the insurer and
insured which arose from the time the former paid indemnity therefor. The accrual of the
cause of action between the debtor and the creditor did not change because no new
obligation was created. The cause of action therefore accrued at the time the original
obligation was breached. It just so happened that the right of action of the subrogor-
insured has been assumed by the subrogee-insured. In which case, the prescriptive
period of actions based on a quasi-delict shall be 4 years from the time the tort is
committed against the insured by the wrongdoer.

The Court’s abandonment of the Vector ruling should be prospective in application

for the reason that judicial decision applying or interpreting the laws or the Constitution,
until reversed, shall form part of the legal system of the Philippines. Based on the
guidelines provided by this Court, cases filed by the subrogee-insurer during the
applicability of the Vector ruling (from vector’s finality on August 15, 2013 up until the
finality of this decision), the prescriptive period is 10 years from the time of payment by
the insurer to the insured, which gave rise to an obligation created by law. Since the
Vector doctrine was prevailing at this time, the issues of prescription must be resolved
under Vector’s parameters.

Hence, as the amended complaint was filed on April 21, 2014, which is within the
10 years from the time UCPB indemnified Copylandia for its loss (November 2, 2006), the
case cannot be said to have prescribed under Vector.
 PHILAM INSURANCE CO., INC. vs. PARC CHATEAU CONDOMINIUM UNIT
OWNERS ASSOCIATION, INC.
G.R. No. 201116
March 04, 2019

Premium

Facts:
Philam was selected by the Parc Association's board of directors to provide the
insurance requirements of the condominium. After Philam appraised the condominium, it
issued Fire and Lightning Insurance Policy and Comprehensive General Liability
Insurance Policy. The parties negotiated for a 90-day payment term of the insurance
premium. This payment term was embodied in a Jumbo Risk Provision, which provided
that the premium installment payments were due on November 30, 2003, December 30,
2003, and January 30, 2004, and that if any of the scheduled payments are not received
in full on or before said dates, the insurance shall be deemed to have ceased at 4 p.m. of
such date, and the policy shall automatically become void and ineffective
Parc Association's board of directors found the terms unacceptable and did not
pursue the transaction. Since no premiums were paid, Philam made oral and written
demands upon Parc Association. Philam filed a complaint against Parc Association and
Colet for recovery of P363,215.21 unpaid premium, plus attorney's fees and costs of suit.

Issue:
Whether or not Philam has a right to recover the unpaid premium based on void
and ineffective insurance policies

Held:
No. In Section 77 of the Insurance Code, the general rule is that no insurance
contract issued by an insurance company is valid and binding unless and until the
premium has been paid. Although there are exceptions laid down in UCPB General
Insurance Co. vs. Masagana Telamart, Inc., none of these exceptions were applicable to
the case at hand.
The first exception is in Section 77 of the Insurance Code, that is, "in the case of a
life or an industrial life policy whenever the grace period provision applies." This does not
apply to this case because the policies involved here are fire and comprehensive general
liability insurance.
The second exception is in Section 78 of the Insurance Code, which states that
"an acknowledgment in a policy or contract of insurance or the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding
any stipulation therein that it shall not be binding until the premium is actually paid.” It is
not applicable because there was no acknowledgment of receipt of premium in the policy
or insurance contract, and in fact, no premium was ever paid.
The third exception is taken from the case of Makati Tuscany Condominium
Corporation vs. Court of Appeals, that is, if the parties agreed to the payment of premium
in installment and partial payment has been made at the time of loss. Here, the parties
agreed to a payment by installment, but no actual payment was made. Thus, the third
exception has no application in this case.
The Makati Tuscany case also provided the fourth exception, that is, if the insurer
has granted the insured a credit term for the payment of the premium, then the general
rule may not apply. Philam argues that the 90-day payment term is a credit extension.
However, the Jumbo Risk Provision is clear that failure to pay each installment on the
due date automatically voids the insurance policy. Here, Parc Association did not pay any
premium, which resulted in a void insurance policy. Hence, the fourth exception finds no
application.
After establishing that none of the exceptions are applicable, the general rule
applies, that is, no insurance contract or policy is valid and binding unless and until the
premium has been paid. Since Parc Association did not pay any premium, then there was
no insurance contract to speak of. Therefore, Philam cannot collect P3 63,215.21 unpaid
premiums of void insurance policies.
 KEIHIN-EVERETT FORWARDING CO., INC., v. TOKIO MARINE MALAYAN
INSURANCE CO., INC. AND SUNFREIGHT FORWARDERS & CUSTOMS
BROKERAGE, INC.,

G.R. No. 212107

January 28, 2019

FACTS:

Honda Trading Philippines ordered some 80 bundles of Aluminum Alloy Ingots from
PT Molten Indonesia. Honda insured the entire shipment with Tokio Marine & Nichido
Fire Insurance Co., Inc. (TMNFIC) Honda Trading also engaged the services of Keihin-
Everett(Everett) to clear and withdraw the cargo from the pier and to transport and
deliver the same to its warehouse in Laguna. Meanwhile, Everett had an Accreditation
Agreement with Sunfreight Forwarders whereby the latter undertook to render
common carrier services for the former and to transport inland goods within the
Philippines. En route to the Honda’s warehouse, the one of the trucks carrying the
containers was hijacked.

Tokio Marine Malayan Insurance Co., Inc. (Tokio Marine) paid Honda the entire amount
under the insurance policy. Tokio Marine subsequently filed a case for Damages in the
RTC against Everett as Tokio Marine claimed that it had been subrogated to all the rights
and causes of action of Honda. In response, Everett impleaded Sunfreight and imputed
upon the latter the sole liability as Sunfreight has the custody of the goods while in transit.
The RTC held Sunfreight solidarily liable with Everett to pay Tokio Marine. Everett was
given a right of reimbursement against Sunfreight in the event Everett pays to Tokio
Marine.

On appeal, the CA held that since Sunfreight does not have contractual relations with
Hinda, it cannot be held solidarily liable under the contract. But, Everett has right of
reimbursement against Sunfreight for whatever amount it was held liable to Tokio Marine.
Dissatisfied, Everett filed this Appeal by Certiorari.

ISSUE: Whether or not the Tokio Marine had been subrogated to all the rights and
causes of action of Honda Trading.
HELD:

Yes, Tokio Marine has been subrogated to all the rights and causes of action of Honda
Trading. Since the insurance claim for the loss sustained by the insured shipment was
paid by Tokio Marine as proven by the Subrogation Receipt – showing the amount paid
and the acceptance made by Honda Trading, it is inevitable that it is entitled, as a
matter of course, to exercise its legal right to subrogation as provided under Article 2207
of the Civil Code as follows:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.

It must be stressed that the Subrogation Receipt only proves the fact of payment. This
fact of payment grants Tokio Marine subrogatory right which enables it to exercise legal
remedies that would otherwise be available to Honda Trading as owner of the hijacked
cargoes as against the common carrier (Keihin-Everett). In other words, the right of
subrogation accrues simply upon payment by the insurance company of the insurance
claim.
 INDUSTRIAL PERSONNEL AND MANAGEMENT SERVICES, INC. vs. COUNTRY
BANKERS INSURANCE CORPORATION

G.R. No. 194126

October 17, 2018

Notice of Loss

Relevant facts:

In 2000, Industrial Personnel and Management Services, Inc. (IPAMS) began recruiting
registered nurses for work deployment in the United States of America (U.S.). It takes
eighteen (18) to twenty four (24) months for the entire immigration process to complete.
As the process requires huge amounts of money, such amounts are advanced to the
nurse applicants.

By reason of the advances made to the nurse applicants, the latter were required to post
surety bond. The purpose of the bond is to guarantee that the nurses will comply with the
immigration process, complete the required documents, and pass all the qualifying
examinations for the issuance of immigration visa.

The Country Bankers Insurance Corporation (Country Bankers) and IPAMS agreed to
provide bonds for the said nurses. Under the agreement of IPAMS and Country Bankers,
the latter will provide surety bonds and the premiums therefor were paid by IPAMS on
behalf of the nurse applicants.

Subsequently, on February 1 2002, a Memorandum of Agreement (MOA) was executed

by the said parties on which stipulated the various requirements for collecting claims from
Country Bankers, namely:

B. REQUIREMENTS FOR CLAIM

Requirements are as follows:

 SURETY BOND:

A. 1st demand letter requiring his/her to submit complete documents.

B. 2nd Demand letter (follow up of above).
C. Affidavit stating reason of any violation to be executed by responsible officer
of Recruitment Agency;
D. Statement of Account (detailed expenses).
E. Transmittal Claim Letter.

On the basis of the MOA, IPAMS submitted its claims under the surety bonds issued by
Country Bankers. For its part, Country Bankers, upon receipt of the documents
enumerated under the MOA, paid the claims to IPAMS. According to IPAMS, starting
2004, some of its claims were not anymore settled by Country Bankers.

In 2004, Country Bankers was not able to pay six (6) claims of IPAMS. The claims were
not denied by Country Bankers, which instead asked for time within which to pay the
claims, as it alleged to be cash strapped at that time. Thereafter, the number of unpaid
claims increased. By February 16, 2007, the total amount of unpaid claims was
P11,309,411.56.

IPAMS took the matter up with the General Manager of Country Bankers, Mr. Ignacio Ong
(Ong). In response, Country Bankers, through its letter dated November 14, 2005 signed
by Mr. Ong, acknowledged the obligations of Country Bankers, apologized for the delay
in the payment of claims, and proposed to amortize the settlement of claims by paying a
semi-monthly amount of P850,000.00. In addition, Country Bankers promised to pay
future claims within a ninety (90)-day period. That commitment made by Country Bankers
was not fulfilled and IPAMS had to deal with Country Bankers' new General Manager,
Ms. Tess Valeriano (Valeriano). Ms. Valeriano assured IPAMS that the obligations of
Country Bankers would be paid promptly.

However, the counsel of Country Bankers, Atty. Marisol Caleja, started to oppose the
payment of claims and insisted on the production of official receipts of IPAMS on the
expenses it incurred for the application of nurses. IPAMS opposed this, saying that the
Country Bankers' insistence on the production of official receipts was contrary to, and not
contemplated in, the MOA and was an impossible condition considering that the U.S.
authorities did not issue official receipts. In lieu of official receipts, IPAMS submitted
statements of accounts, as provided in the MOA.
Due to the unwillingness of Country Bankers to settle the claims of IPAMS, the latter
sought the intervention of the Insurance Commission (IC), through a letter complaint.

Country Bankers on the other hand alleged that until the third quarter of 2006, it never
received any complaint from IPAMS. Due to remarkable high loss ratio of IPAMS, the
latter's accounts were evaluated and audited by the Country Bankers. The IPAMS was
informed of the same problem. Instead of complying with the requirements for claim
processes, IPAMS insisted that the supporting documents cannot be produced.

The parties went to a series of conferences to settle the differences but to no avail. The
IC therefore ordered the parties to submit their respective Position Papers.

The Claims Division of the IC issued a Resolution declaring that there is no ground for
the refusal of Country Bank to pay the claims of IPAMS. It further stated that the failure
to settle the claim after having entered into an Agreement with the complainant, IPAMS,
demonstrates respondent's bad faith in the fulfillment of their obligation. Country Bankers
made an appeal before the Department of Finance (DOF) but said agency affirmed the
IC’s order. The subsequent appeal to the Office of the President (OP) affirmed the DOF’s
ruling. However, the Court of Appeals reversed and set aside the aforementioned rulings.

Issues relevant to Commercial Law

Is there any justification for respondent Country Banker to deny the payment of claims
presented by petitioner IPAMS based on the lack of official receipts?

Decision/Held:

No. The Court finds that, by stipulation of petitioner IPAMS and respondent Country
Bankers in their MOA, the parties waived the requirement of actually proving the
expenses incurred by petitioner IPAMS through the submission of official receipts and
other documentary evidence. Thus, respondent Country Bankers was not justified in
denying the payment of claims presented by petitioner IPAMS based on the lack of official
receipts.
Under the Insurance Code, all defects in the proof of loss, which the insured might
remedy, are waived as grounds for objection when the insurer omits to specify to him
without unnecessary delay.

The subject agreement of the parties indubitably contemplates a surety agreement, which
is governed mainly by the Insurance Code, considering that a contract of suretyship shall
be deemed an insurance contract within the contemplation of the Insurance Code if made
by a surety which is doing an insurance business. In this case, the surety, i.e., respondent
Country Bankers, is admittedly an insurance company engaged in the business of
insurance. In fact, the CA itself in its assailed Decision mentioned that a contract of
suretyship is defined and covered by the Insurance Code.

Moreover, the Insurance Code specifically provides applicable provisions on suretyship,

stating that pertinent provisions of the Civil Code shall only apply suppletorily whenever
necessary in interpreting the provisions of a contract of suretyship. Jurisprudence also
holds that a specific law should prevail over a law of general character.

Hence, in the resolution of the instant case, the CA erred in not considering the applicable
provisions under the Insurance Code on the required proof of loss and when such
requirement is waivable.

Therefore, Section 92 of the Insurance Code must be taken into consideration. The
said provision states that all defects in the proof of loss, which the insured might remedy,
are waived as grounds for objection when the insurer omits to specify to him without
unnecessary delay. It is the duty of the insurer to indicate the defects on the proofs of loss
given, so that the deficiencies may be supplied by the insured. When the insurer
recognizes his liability to pay the claim, there is waiver by the insurer of any defect in the
proof of loss.

In the instant case, it must be emphasized that respondent Country Bankers, through its
General Manager, Mr. Ong, issued a letter dated November 14, 2005 which readily
acknowledged the obligations of Country Bankers under the surety agreement,
apologized for the delay in the payment of claims, and proposed to amortize the
settlement of claims by paying a semi-monthly amount of P850,000.00. In addition,
Country Bankers promised to pay future claims within a 90-day period.

It bears stressing that respondent Country Bankers, after undergoing an evaluation of the
total number of claims of petitioner IPAMS, undertook the settlement of such claims
even WITHOUT the submission of official receipts.

In fact, respondent Country Bankers raised up the issue on the missing official receipts
and other evidence to prove the expenses incurred by petitioner IPAMS only when the
latter requested the intervention of the IC in 2007. If respondent Country Bankers truly
believed that the submission of official receipts was critical in providing proof as to
petitioner IPAMS' claims, then it would have raised the issue on the lack of official receipts
at the earliest possible opportunity. This only shows that the argument of respondent
Country Bankers on the lack of official receipts was a mere afterthought to evade its
obligation to pay the claims presented by petitioner IPAMS.

While not denying the existence of the said letter, respondent Country Bankers attempts
to downplay it by arguing that the claims covered by the letter and the claims raised by
petitioner IPAMS before the IC are different and distinct from each other. Such argument
deserves scant consideration.

While the claims in the said letter may be different from the specific claims presented
before the IC, both sets of claims were similarly made under the same suretyship
agreement between the parties. Thus, the fact still remains that respondent Country
Bankers had previously acknowledged the validity of a set of claims under a surety bond
within the purview of the Requirements for Claim Clause despite the lack of official
receipts and other pieces of evidence aside from the required documents enumerated in
the MOA. To be sure, it must also be pointed out that the representations of respondent
Country Bankers in the said letter likewise refer to future and similar claims of petitioner
IPAMS. Hence, respondent Country Bankers' attempt to downplay the ramifications of its
letter dated November 14, 2005 is puerile.

Also, it must be emphasized that the IC, after holding a series of conferences between
the parties and after the assessment of the respective position papers and evidence from
both parties, made the factual finding in its Resolution dated June 26, 2007 that
respondent Country Bankers committed certain acts constituting a waiver of its right to
require the presentation of additional documents to prove the expenses incurred by
petitioner IPAMS, such as the issuance of the letter dated November 14, 2005 and the
acceptance by respondent Country Bankers of reimbursement from the nurse applicants
of petitioner IPAMS on the basis of the Statements of Accounts presented, even without
any official receipt attached. In fact, the records show that respondent Country Bankers
does not deny the fact that it accepted the reimbursements from the nurse applicants
based on the Statements of Accounts of petitioner IPAMS.

Furthermore, the DOF likewise factually determined that respondent Country Bankers,
through its new General Manager, Ms. Valeriano, had assured IPAMS that the obligations
of Country Bankers would be paid promptly, again, even without the submission of official
receipts and other pieces of evidence. The DOF similarly found that the proposal by
respondent Country Bankers to amortize the settlement of petitioner IPAMS' claims by
paying the latter the semi-monthly amount of P850,000.00 and respondent Country
Bankers' acceptance of reimbursements from the nurse-applicants based on the mere
Statements of Accounts submitted by petitioner IPAMS are tantamount to an
acknowledgment on the part of respondent Country Bankers of its liability for claims under
the surety bonds.

Moreover, the OP also factually found that respondent Country Bankers "knew as a
matter of IPAMS' regular course of business that these covered transactions are generally
not issued official receipts by US government and its agencies and the US based
professional organizations and institutions involved to complete the requirements for the
issuance of an immigrant visa."

These factual findings of three separate administrative agencies, which were not at all
reversed or refuted by the CA in its assailed Decision, should not be perturbed by the
Court without any compelling countervailing reason.

Accordingly, under Section 92 of the Insurance Code, the failure to attach official receipts
and other documents evidencing the expenses incurred by petitioner IPAMS, even
assuming that it can be considered a defect on the required proof of loss, is therefore
considered waived as ground for objecting the claims of petitioner IPAMS.
 THE INSULAR ASSURANCE CO., LTD., Petitioner, v.

THE HEIRS OF JOSE H. ALVAREZ

G.R. No. 207526

October 03, 2018

Concealment, Representation

Facts:

Alvarez applied for and was granted a housing loan by. This loan was secured by a
promissory note, a real estate mortgage over the lot, and a mortgage redemption
insurance taken on the life of Alvarez with UnionBank as beneficiary. Alvarez was among
the mortgagors included in the list of qualified debtors covered by the Group Mortgage
Redemption Insurance that UnionBank had with Insular Life.

Alvarez died and subsequently, UnionBank filed with Insular Life a death claim under
Alvarez's name pursuant to the Group Mortgage Redemption Insurance. Insular Life
denied the claim after determining that Alvarez was not eligible for coverage as he was
supposedly more than 60 years old at the time of his loan's approval.

With the claim's denial, the monthly amortizations of the loan stood unpaid. Subsequently,
the lot was foreclosed and sold at a public auction with UnionBank as the highest bidder.
The Heirs of Alvarez filed a complaint for specific performance to demand against Insular
Life to fulfill its obligation as an insurer under the Group Mortgage Redemption Insurance,
and for nullification of foreclosure against UnionBank.

Both Court of Appeals and Regional Trial Court ruled in favor of the Heirs of Alvarez. They
noted that the errors assigned by Insular Life and UnionBank boiled down to the issue of
whether or not Alvarez was guilty of fraudulent misrepresentation as to warrant the
rescission of the Group Mortgage Redemption Insurance obtained by UnionBank on
Alvarez's life. Insular Life only relied on Alvarez's Health Statement Form where he wrote
"1942" as his birth year. However, this form alone was insufficient to prove that he
fraudulently intended to misrepresent his age. It noted that aside from the Health
Statement Form, Alvarez had to fill out an application for insurance. This application
would have supported the conclusion that he consistently wrote "1942" in all the
documents that he had submitted to UnionBank. However, the records made no reference
to this document.

Issue:Whether or not The Insular Life Assurance Co., Ltd. is obliged to pay UnionBank
the balance of Alvarez's loan given the claim that he lied about his age at the time of the
approval of his loan
Held:

Citing Section 27 of the Insurance Code, however, Insular Life asserts that in cases of
rescission due to concealment, i.e., when a party "neglect[s] to communicate that which
[he or she] knows and ought to communicate," proof of fraudulent intent is not necessary.
Section 27 of the Insurance Code reads:

“A concealment whether intentional or unintentional entitles the injured party to rescind a

contract of insurance.”

While Insular Life correctly reads Section 27 as making no distinction between intentional
and unintentional concealment, it erroneously pleads Section 27 as the proper statutory
anchor of this case. The Insurance Code distinguishes representations from
concealments. What this case involves, instead, is an allegedly false representation.
Section 44 of the Insurance Code states, "A representation is to be deemed false when
the facts fail to correspond with its assertions or stipulations." If indeed Alvarez
misdeclared his age such that his assertion fails to correspond with his factual age, he
made a false representation, not a concealment.

In relation to Section 44, Section 45 of the Insurance Code reads:

“If a representation is false in a material point, whether affirmative or promissory, the

injured party is entitled to rescind the contract from the time when the representation
becomes false.”

Not being similarly qualified as rescission under Section 27, rescission under Section 45
remains subject to the basic precept of fraud having to be proven by clear and convincing
evidence. Consistent with the requirement of clear and convincing evidence, it was Insular
Life's burden to establish the merits of its own case. At bar, Insular Life basically relied
on the Health Statement form personally accomplished by Jose Alvarez wherein he wrote
that his birth year was 1942. The Court, however posited that Alvarez must have
accomplished and submitted many other documents when he applied for the housing loan
and executed supporting instruments like the promissory note, real estate mortgage,
andGroup Mortgage Redemption Insurance. A design to defraud would have demanded
his consistency. He needed to maintain appearances across all documents.

However, the best that Insular Life could come up with before the Regional Trial Court
and the Court of Appeals was a single document. The Court of Appeals was
straightforward, i.e., the most basic document that Alvarez accomplished in relation to
Insular Life must have been an insurance application form.
Strangely, Insular Life failed to adduce even this document — a piece of evidence that
was not only commonsensical, but also one which has always been in its possession and
disposal. Insular Life had all the opportunity to demonstrate Alvarez's pattern of
consistently indicating erroneous entries for his age. All it needed to do was to inventory
the documents submitted by Alvarez and note the statements he made concerning his
age. This was not a cumbersome task, yet it failed at it. Its failure to discharge its burden
of proving must thwart its plea for relief from this Court.
 Enriquez v. The Mercantile Insurance Co., Inc.,

G.R.No.210950

August 15, 2018

(Insurance Law – Suretyship Agreement, Indemnity Agreement)

Relevant facts: Enriquez filed a Complaint for Replevin against Wilfred Asuten (Asuten)
before the Regional Trial Court of Angeles City, Pampanga, for the recovery of her Toyota
Hi-Ace van valued at P300,000.00. Asuten allegedly refused to return her van. Enriquez
applied for a replevin bond from Mercantile Insurance. On February 24, 2003, Mercantile
Insurance issued Bond No. 138 for P600,000.00, which had a period of one (1) year or
until February 24, 2004. Enriquez also executed an indemnity agreement with Mercantile
Insurance, where she agreed to indemnify the latter "for all damages, payments,
advances, losses, costs, taxes, penalties, charges, attorney's fees and expenses of
whatever kind and nature" that it would incur as surety of the replevin bond. The Complaint
was dismissed without prejudice due to Enriquez's continued failure to present evidence.
The Regional Trial Court found that Enriquez surrendered the van to the Bank of the
Philippine Islands, San Fernando Branch but did not comply when ordered to return it to
the sheriff. She also did not comply with prior court orders to prove payment of her
premiums on the replevin bond or to post a new bond. Thus, the Regional Trial Court
declared Bond No. 138 forfeited. Mercantile Insurance was given 10 days to produce the
van or to show cause why judgment should not be rendered against it for the amount of
the bond. The Regional Trial Court directed Mercantile Insurance to pay Asuten the
amount of P600,000.00.
Mercantile Insurance wrote to Enriquez requesting the remittance of P600,000.00 to be
paid on the replevin bond. Due to Enriquez's failure to remit the amount, Mercantile
Insurance paid Asuten P600,000.00 on September 3, 2004, in compliance with the
Regional Trial Court July 12, 2004 Order. It was also constrained to file a collection suit
against Enriquez with the Regional Trial Court of Manila. The Regional Trial Court ruled
in favor of Mercantile Insurance. It found that non-payment of the premiums did not cause
the replevin bond to expire. Thus, Enriquez was still liable for the reimbursement made
by the surety on the bond.
Issues relevant to Commercial Law:

(1) Whether or not the SURETY is still liable under the Indemnity contract despite
allegations that it ceased to be in force and effect because of the alleged expiration of the
replevin bond?

(2) Whether the principal was still liable to pay to replevin bond or the amount of
the van?

Decision/Held:

(1) Yes. The indemnity agreement was still in force despite the expiration of the
replevin bond on February
24, 2004. Consequently, the SURETY is not released from his obligation to pay.
Consequently, the SURETY may ask for reimbursement from the principal.

When Replevin is sought for as a provisional remedy, a party may apply for an
order for the delivery of the property before the commencement of the action or at any
time before an answer is filed. Rule 60 of the Rules of Court outlines the procedure for
the application of a writ of replevin. Rule 60, Section 2 requires that the party seeking the
issuance of the writ must first file the required affidavit and a bond in an amount that
is double the value of the property. The applicant must also give a bond, executed to the
adverse party in double the value of the property as stated in the affidavit aforementioned,
for the return of the property to the adverse party if such return be adjudged, and for the
payment to the adverse party of such sum as he may recover from the applicant in the
action.

Once the affidavit is filed and the bond is approved by the court, the court issues
an order and a writ of seizure requiring the sheriff to take the property into his or her
custody. If there is no further objection to the bond filed within five (5) days from the taking
of the property, the sheriff shall deliver it to the applicant. The contested property remains
in the applicant's custody until the court determines, after a trial on the Issues, which
among the parties has the right of possession.

There was no trial on the merits. The Regional Trial Court's dismissal for failure to
prosecute was a dismissal without prejudice to re-filing. In this particular instance, any
writ of seizure, being merely ancillary to the main action, becomes functus oficio. The
parties returned to the status quo as if no case for replevin had been filed. Thus, upon
the dismissal of the case, it was imperative for petitioner to return the van to Asuten.
 Thus, to forfeit the replevin bond, it is required that first, a judgment on the merits
in the defendant's favor be made, and second, an application by the defendant for
damages is made.

Neither circumstance appears in this case. When petitioner failed to produce the
van, equity demanded that Asuten be awarded only an amount equal to the value of
the van. The Regional Trial Court would have erred in ordering the forfeiture of
the entire bond in Asuten's favor, considering that there was no trial on the merits or an
application by Asuten for damages. However in the case at bar, the RTC ordered payment
on the bond, and since the petitioner did not appeal the judgment, respondent was, thus,
constrained to follow the Regional Trial Court's directive to pay Asuten the full amount of
the bond.

(1) Yes. The principal eventually became liable on the replevin bond. Basic is the
principle that "a contract is law between the parties"for as long as it is "not
contrary to law, morals, good customs, public order, or public policy."
In Verendia v. Court of Appeals,
Basically a contract of indemnity, an insurance contract is the law between the parties. Its
terms and conditions constitute the measure of the insurer's liability and compliance
therewith is a condition precedent to the insured's right to recovery from the insurer. As it
is also a contract of adhesion, an insurance contract should be liberally construed in favor
of the insured and strictly against the insurer company which usually prepares it.

Respondent, however, does not seek to recover an amount which exceeds the
amount of the bond or any "damages, payments, advances, losses, costs, taxes,
penalties, charges, attorney's fees and expenses of whatever kind and nature," all of
which it could have sought under the Indemnity Agreement. It only seeks to recover from
petitioner the amount of the bond, or P600,000.00, which it paid pursuant to the order of
the Regional Trial Court. Since the Petitioner did not appeal the order, the judgment
attained finality.
Thus, the Regional Trial Court forfeited the replevin bond which she had filed because
she refused to return the property. She is now made liable for the replevin bond
because she failed to appeal its forfeiture.
 STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LIMITED
v. SULPICIO LINES, INC.

GR. No. 196072

September 20, 2017

Perfection; Insurance policy

Facts: Steamship was a Bermuda-based Protection and Indemnity Club. Sulpicio insured
its fleet of inter-island vessels with Steamship for Protection & Indemnity risks. One of
these vessels was the M/V Princess of the World, evidenced by a Certificate of Entry and
Acceptance issued by Steamship.

On July 7, 2005, M/V Princess of the World was gutted by fire, accidental in nature, while
on voyage from Iloilo to Zamboanga City, resulting in total loss of its cargoes. Sulpicio
claimed indemnity from Steamship under the Protection & Indemnity insurance policy but
the latter denied the claim and subsequently rescinded the insurance coverage of
Sulpicio's other vessels on the ground of gross negligence on the part of the insured.

On June 28, 2007, Sulpicio filed a Complaint with the RTC of Makati against Steamship.
Steamship filed its Motion to Dismiss and/or to Refer Case to Arbitration pursuant to
Republic Act No. 9285, or the Alternative Dispute Resolution Act of 2004 (ADR Law), and
to Rule 47 of the 2005/2006 Club Rules, which supposedly provided for arbitration in
London of disputes between Steamship and its members. The RTC denied the motions
to dismiss. It held that "arbitration did not appear to be the most prudent action, . . .
considering that the other defendants . . . had already filed their respective answers."
Steamship filed its Motion for Reconsideration, but it was likewise denied.

Steamship assailed trial court orders before the CA through a Rule 65 Petition, The CA
dismissed the petition as it found no grave abuse of discretion on the part of the trial court
in denying Steamship's Motion to Dismiss and/or to Refer Case to Arbitration or any
convincing evidence to show that a valid arbitration agreement existed between the
parties. Steamship's Motion for Reconsideration of this Decision was likewise denied.
Hence, this petition.
Issue: Is there a valid and binding arbitration agreement between the insurer and the
insured?

Ruling: Yes. There exists a valid and binding arbitration agreement incorporated in the
insurance policy by reference.

The contract between Sulpicio and Steamship is more than a contract of insurance
between a marine insurer and a shipowner. By entering its vessels in Steamship, Sulpicio
not only obtains insurance coverage for its vessels but also becomes a member of
Steamship. A protection and indemnity club is a mutual insurance association, which is a
cooperative enterprise where the members are both the insurer and insured.

A shipowner wishing to enter its fleet of vessels to Steamship must fill in an application
for entry form that is signed by the shipowner or its authorized representative. Steamship
then issues a Certificate of Entry and Acceptance of the vessels, showing its acceptance
of the entry. Thus, a contract of insurance is perfected between the parties upon
Steamship's issuance of the Certificate of Entry and Acceptance.

A contract of insurance, like other contracts, must be assented to by both parties either
in person or by their agents. So long as an application for insurance has not been either
accepted or rejected, it is merely an offer or proposal to make a contract.

The Insurance Code defines an insurance policy as "the written instrument in which a
contract of insurance is set forth." Any rider, clause, warranty, or endorsement attached
and referred to in the policy by its descriptive title or name is considered part of this policy
or contract of insurance and binds the insured. There is nothing in the law that prohibits
the parties of an insurance contract from agreeing to other terms and conditions that
would govern their relationship, in which case the general rules of the Civil Code
regulating contracts will apply.

The Certificate of Entry and Acceptance plainly provides that the protection and indemnity
coverage would be to the extent specified and in accordance with the Act, the By-Laws,
and the Rules of the Club in force at the time of the coverage. M/V Princess of the World
was insured from February 20, 2005 to February 20, 2006. Hence, the 2005/2006 Club
Rules apply. Sulpicio's acceptance of the Certificate of Entry and Acceptance manifests
its acquiescence to all its provisions. Its acceptance, likewise, operated as an acceptance
of the entire provisions of the Club Rules.

Under Rule 47 of the 2005/2006 Club Rules, any dispute concerning the insurance
afforded by Steamship must first be brought by a claiming member to the Directors for
adjudication. If this member disagrees with the decision of the Director, the dispute must
be referred to arbitration in London. Despite the member's disagreement, the Managers
of Steamship may refer the dispute to arbitration without adjudication of the Directors.
This procedure must be complied with before the member can pursue legal proceedings
against Steamship.

There is no ambiguity in the terms and clauses of the Certificate of Entry Acceptance.
The incorporation of the Club Rules in the insurance policy is without any qualification.
This includes the arbitration clause even if not particularly stipulated.
 EQUITABLE INSURANCE CORPORATION, PETITIONER, VS.
TRANSMODAL INTERNATIONAL, INC., RESPONDENT.

G.R. No. 223592, August 07, 2017

Right of Subrogation; Evidence

Facts:

Sytengco Enterprises Corporation (Sytengco) hired respondent Transmodal

International, Inc. (Transmodal) to clear from the customs authorities and withdraw,
transport, and deliver to its warehouse, cargoes consisting of 200 cartons of gum Arabic
with a total weight of 5,000 kilograms valued at US21,750.00. Respondent delivered
them to Sytengco's warehouse. A survey was conducted by Elite Surveyors, it was
found that 187 cartons had water marks and the contents of the 13 wet cartons were
partly hardened. In its final report Elite Surveyor fixed the computed loss payable at
P728,712.00 after adjustment of 50% loss allowance. Thus, Sytengco demanded from
transmodal as compensation of total loss of the shipment. The petitioner Equitable
Insurance, as insurer of the cargoes paid such claim. Sytengco then signed a
subrogation receipt and loss receipt in favor of petitioner Equitable Insurance. As such,
petitioner Equitable Insurance demanded from respondent Transmodal reimbursement
of the payment given to Sytengco. As such, petitioner filed a complaint for damages
invoking its right as subrogee after paying Sytengco's insurance claim and averred that
respondent Transmodal's fault and gross negligence were the causes of the damages
sustained by Sytengco's shipment. Respondent Transmodal denied knowledge of an
insurance policy and claimed that petitioner Equitable Insurance has no cause of action
against it because the damages to the cargoes were not due to its fault or gross
negligence.

Issue:

a.) WON in an actions involving insurance claims filed by insurance companies as

subrogees, should the insurance policy be presented in evidence?

b.) WON the petitioner may claim against the Transmodal as a subrogee?
Held:

a.) Yes. As a general rule, the marine insurance policy needs to be presented in
evidence before the insurer may recover the insured value of the lost/damaged cargo
in the exercise of its subrogatory right. The presentation of the contract constitutive of
the insurance relationship between the consignee and insurer is critical because it is
the legal basis of the latter's right to subrogation (Asian Terminals, Inc. v. First Lepanto-
Taisho Insurance Corporation). Nevertheless, the rule is not inflexible. In certain
instances, the Court has admitted exceptions by declaring that a marine insurance
policy is dispensable evidence in reimbursement claims instituted by the insurer. For
one, in case of subrogation, the subrogation receipt may be presented, which, by itself,
has been held sufficient to establish not only the relationship between the insurer and
consignee, but also the amount paid to settle the insurance claim.

b.) Yes, it was well established that petitioner has right to step into the shoes of the
insured who has direct cause of action against herein respondent on account of the
damages sustained by the cargoes, “subrogation is the substitution of one person in
the place of another with reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a debt or claim, including
its remedies or securities.” Petitioner was able to present as evidence the marine open
policy that vested upon it, its right as subrogee.

Subrogation is designed to promote and to accomplish justice and is the mode which
equity adopts to compel the ultimate payment of a debt by one who injustice, equity
and good conscience ought to pay.

Thus, the Equitable Insurance Corporation has the right to claim against the
Transmodal as subrogee.
 MEDICARD PHILIPPINES, INC., Petitioner, vs.COMMISSIONER OF INTERNAL
REVENUE, Respondent.

G.R. No. 222743

April 5, 2017

Health Maintenance Organizations engaged in the business of insurance

Facts: MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid

health and medical insurance coverage to its clients. Individuals enrolled in its health
care programs pay an annual membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by duly licensed physicians,
specialists and other professional technical staff participating in the group practice
health delivery system at a hospital or clinic owned, operated or accredited by it.

According to the CIR, the taxable base of HMOs for VAT purposes is its gross receipts
without any deduction under Section 4.108.3(k) of Revenue Regulation (RR) No. 16-
2005. Citing Commissioner of Internal Revenue v. Philippine Health Care Providers,
Inc., the CIR argued that since MEDICARD. does not actually provide medical and/or
hospital services, but merely arranges for the same, its services are not VAT exempt.

MEDICARD argued that: (1) the services it render is not limited merely to arranging for
the provision of medical and/or hospital services by hospitals and/or clinics but include
actual and direct rendition of medical and laboratory services; in fact, its 2006 audited
balance sheet shows that it owns x-ray and laboratory facilities which it used in
providing medical and laboratory services to its members; (2) out of the ₱l .9 Billion
membership fees, ₱319 Million was received from clients that are registered with the
Philippine Export Zone Authority (PEZA) and/or Bureau of Investments; (3) the
processing fees amounting to ₱l 1.5 Million should be excluded from gross receipts
because P5.6 Million of which represent advances for professional fees due from clients
which were paid by MEDICARD while the remainder was already previously subjected
to VAT; (4) the professional fees in the amount of Pl 1 Million should also be excluded
because it represents the amount of medical services actually and directly rendered by
MEDICARD and/or its subsidiary company; and (5) even assuming that it is liable to pay
for the VAT, the 12% VAT rate should not be applied on the entire amount but only for
the period when the 12% VAT rate was already in effect, i.e., on February 1, 2006. It
should not also be held liable for surcharge and deficiency interest because it did not
pass on the VAT to its members.
Issue: WHETHER THE AMOUNTS THAT MEDICARD EARMARKED AND
EVENTUALLY PAID TO THE MEDICAL SERVICE PROVIDERS SHOULD STILL
FORM PART OF ITS GROSS RECEIPTS FOR VAT PURPOSES.

Held: The amounts earmarked and eventually paid by MEDICARD to the medical
service providers do not form part of gross receipts for VAT purposes

MEDICARD explains that its business as an HMO involves two different although
interrelated contracts. One is between a corporate client and MEDICARD, with the
corporate client's employees being considered as MEDICARD members; and the other
is between the health care institutions/healthcare professionals and MED ICARD.

Under the first, MEDICARD undertakes to make arrangements with healthcare

institutions/healthcare professionals for the coverage of MEDICARD members under
specific health related services for a specified period of time in exchange for payment of
a more or less fixed membership fee. Under its contract with its corporate clients,
MEDICARD expressly provides that 20% of the membership fees per individual,
regardless of the amount involved, already includes the VAT of 10%/20% excluding the
remaining 80o/o because MED ICARD would earmark this latter portion for medical
utilization of its members. Lastly, MEDICARD also assails CIR's inclusion in its gross
receipts of its earnings from medical services which it actually and directly rendered to
its members.

Since an HMO like MEDICARD is primarily engaged in arranging for coverage or

designated managed care services that are needed by plan holders/members for fixed
prepaid membership fees and for a specified period of time, then MEDICARD is
principally engaged in the sale of services.

The CTA en banc overlooked that the definition of gross receipts under. RR No. 16-
2005 merely presumed that the amount received by an HMO as membership fee is the
HMO's compensation for their services. As a mere presumption, an HMO is, thus,
allowed to establish that a portion of the amount it received as membership fee does
NOT actually compensate it but some other person, which in this case are the medical
service providers themselves. It is a well-settled principle of legal hermeneutics that
words of a statute will be interpreted in their natural, plain and ordinary acceptation and
signification, unless it is evident that the legislature intended a technical or special legal
meaning to those words. The Court cannot read the word "presumed" in any other way.
In Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, the
Court adopted the principal object and purpose object in determining whether the
MEDICARD therein is engaged in the business of insurance and therefore liable
for documentary stamp tax. The Court held therein that an HMO engaged in
preventive, diagnostic and curative medical services is not engaged in the business of
an insurance, thus:

To summarize, the distinctive features of the cooperative are the rendering of service,
its extension, the bringing of physician and patient together, the preventive
features, the regularization of service as well as payment, the substantial
reduction in cost by quantity purchasing in short, getting the medical job done
and paid for; not, except incidentally to these features, the indemnification for
cost after .the services is rendered. Except the last, these are not distinctive or
generally characteristic of the insurance arrangement. There is, therefore, a
substantial difference between contracting in this way for the rendering of service, even
on the contingency that it be needed, and contracting merely to stand its cost when or
after it is rendered.)

In sum, the Court said that the main difference between an HMO arid an insurance
company is that HMOs undertake to provide or arrange for the provision of medical
services through participating physicians while insurance companies simply undertake
to indemnify the insured for medical expenses incurred up to a pre-agreed limit. In the
present case, the VAT is a tax on the value added by the performance of the service by
the taxpayer. It is, thus, this service and the value charged thereof by the taxpayer that
is taxable under the NIRC
 Gaisano v. Development Insurance and Surety Corp.,

G.R. No. 190702,

February 27, 2017

PREMIUM/BINDING INSURANCE CONTRACTS

FACTS: Respondent issued a comprehensive commercial vehicle policy to petitioner

over the 1992 Mitsubishi Montero (vehicle) owned by petitioner for a period of one year
commencing on September 27, 1996.

Petitioner’s company, Noah’s Ark, issued a Far East Bank check dated September 27,
1996 payable to Trans-Pacific on the same day. The check represents payment for the
insurance policies, with P55,620.60 for the premium and other charges over the vehicle.
However, nobody from Trans-Pacific picked up the check that day (September 27)
because its president and general manager was celebrating his birthday. It informed
Noah’s Ark that its messenger would get the check the next day.

In the evening of September 27, 1996, while under the official custody of Noah’s Ark
marketing manager Pacquing as a service company vehicle, the vehicle was stolen in
the vicinity of SM Megamall.

Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28.
It issued an official receipt, acknowledging the receipt of the premium and other charges
over the vehicle. The check was deposited with Metrobank for encashment on October
1, 1996.

On the same date, petitioner was informed of the vehicle’s loss. Thereafter, petitioner
filed a claim with respondent for the insurance proceeds of P1,500,000.00. After
investigation, respondent denied petitioner’s claim on the ground that there was no
insurance contract.
Petitioner filed a complaint to collect the insurance proceeds from respondent. Hence
petitioner filed this petition.

ISSUE: Whether or not there is a binding insurance contract between petitioner and
respondent.

RULING: The insurance contract is not binding. Insurance is a contract whereby one
undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. Just like any other contract, it requires a
cause or consideration. The consideration is the premium, which must be paid at the
time and in the way and manner specified in the policy. If not so paid, the policy will
lapse and be forfeited by its own terms.

The law, however, limits the parties’ autonomy as to when payment of premium may be
made for the contract to take effect. The general rule in insurance laws is that unless
the premium is paid, the insurance policy is not valid and binding.

Section 77 of the Insurance Code provides:

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no
policy or contract of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies.

Here, there is no dispute that the check was delivered to and was accepted by
respondent’s agent, Trans-Pacific, only on September 28, 1996. No payment of
premium had thus been made at the time of the loss of the vehicle on September 27,
1996.

Thus, at the time of loss, there was no payment of premium yet to make the insurance
policy effective
 Communication and Informations Systems vs. Mark Sensing Australia Pty. Ltd.
G.R. No. 192150, January 25, 2017
Jardeleza, J.

Reinsurance

FACTS:
Communication and Information Systems Corporation (CISC) and Mark Sensing
Australia Pty. Ltd. (MSAPL) entered into a Memorandum of Agreement (MOA) whereby
MSAPL appointed CISC as "the exclusive AGENT of [MSAPL] to PCSO during the
[lifetime] of the recently concluded MOA entered into between [MSAPL], PCSO and other
parties." The recent agreement referred to in the MOA is the thermal paper and bet slip
supply contract between the PCSO, MSAPL, and three other suppliers, namely Lamco
Paper, Consolidated Paper and Trojan Computer Forms. As consideration for CISC's
services, MSAPL agreed to pay CISC a commission of 24.5% of future gross sales to
PCSO, exclusive of duties and taxes, for six years.

After initially complying with its obligation under the MOA, MSAPL stopped remitting
commissions to CISC during the second quarter of 2004. As a result, CISC filed a
complaint before the RTC for specific performance against MSAPL, MSPI, Atty. Ofelia
Cajigal, and PCSO. CISC prayed that private respondents be ordered to comply with its
obligations under the MOA. It also asked the RTC to issue a writ of preliminary mandatory
injunction and/or writ of attachment.

RTC granted CISC's application for issuance of a writ of preliminary attachment, stating
that "the non-payment of the agreed commission constitutes fraud on the part of the
defendant MSAPL in their performance of their obligation to the plaintiff." The RTC found
that MSAPL is a foreign corporation based in Australia, and its Philippine subsidiary,
MSPI, has no other asset except for its collectibles from PCSO. Thus, the RTC concluded
that CISC may be left without any security if ever MSAPL is found liable. But the RTC
limited the attachment to P4,861,312.00, which is the amount stated in the complaint,
instead of the amount sought to be attached by CISC, i.e., P113,197,309.10.The RTC
explained that it "will have to await the Supreme Court judgment over the issue of whether
[it] has jurisdiction on the amounts in the excess of the amount prayed for by the plaintiff
in their complaint" since MSAPL appealed the adverse judgment in CA-G.R. SP No.
96620 to us. We later denied MSAPL's petition for review assailing the CA Decision

CISC posted a bond in the amount of P113,197,309.10 through Plaridel Surety and
Insurance Company in favor of MSAPL then MSAPL filed a motion to determine the
sufficiency of the bond because of questions regarding the financial capacity of Plaridel.
But before the RTC could act on this motion, MSAPL, apparently getting hold of Plaridel's
latest financial statements, moved to recall and set aside the approval of the attachment
bond on the ground that Plaridel had no capacity to underwrite the bond pursuant to
Section 215 of the old Insurance Code because its net worth was only P214,820,566.00
and could therefore only underwrite up to P42,964,113.20. RTC denied MSAPL's motion,
finding that although Plaridel cannot underwrite the bond by itself, the amount covered by
the attachment bond "was likewise re¬insured to sixteen other insurance companies."
However, "for the best interest of both parties," the RTC ordered Plaridel to submit proof
that the amount of P95,819,770.91 was reinsured. Plaridel submitted its compliance
attaching therein the reinsurance contracts. MSAPL, MSPI and Atty. Ofelia Cajigal filed a
petition for certiorari . CA held that the RTC exceeded its authority when it "ordered the
issuance of the writ [of preliminary attachment] despite a dearth of evidence to clearly
establish [CISC's] entitlement thereto, let alone the latter's failure to comply with all
requirements therefor." Noting that the posting of the attachment bond is a jurisdictional
requirement, the CA concluded that since Plaridel's capacity for single risk coverage is
limited to 20% of its net worth, or P57,866,599.80, the RTC "should have set aside the
second writ outright for non-compliance with Sections 3 and 4 of Rule 57." Hence this
petition.

ISSUE: Can the courts may approve an attachment bond which has been reinsured as
to the excess of the issuer's statutory retention limit?

RULING: No. Section 215 of the old Insurance Code, the law in force at the time Plaridel
issued the attachment bond, limits the amount of risk that insurance companies can retain
to a maximum of 20% of its net worth. However, in computing the retention limit, risks that
have been ceded to authorized reinsurers are ipso jure deducted. In mathematical terms,
the amount of retained risk is computed by deducting ceded/reinsured risk from insurable
risk. If the resulting amount is below 20% of the insurer's net worth, then the retention
limit is not breached. In this case, both the RTC and CA determined that, based on
Plaridel's financial statement that was attached to its certificate of authority issued by the
Insurance Commission, its net worth is P289,332,999.00. Plaridel's retention limit is
therefore P57,866,599.80, which is below the Pl13,197,309.10 face value of the
attachment bond. However, it only retained an insurable risk of P17,377,938.19 because
the remaining amount of P98,819,770.91 was ceded to 16 other insurance companies.
Thus, the risk retained by Plaridel is actually P40 Million below its maximum retention
limit. Therefore, the approval of the attachment bond by the RTC was in order.

In cancelling Plaridel's insurance bond, the CA also found that because the reinsurance
contracts were issued in favor of Plaridel, and not MSAPL, these failed to comply with the
requirement of Section 4, Rule 57 of the Rules of Court requiring the bond to be executed
to the adverse party. This led the CA to conclude that "the bond has been improperly and
insufficiently posted." We reverse the CA and so hold that the reinsurance contracts were
correctly issued in favor of Plaridel. A contract of reinsurance is one by which an insurer
(the "direct insurer" or "cedant") procures a third person (the "reinsurer") to insure him
against loss or liability by reason of such original insurance. It is a separate and distinct
arrangement from the original contract of insurance, whose contracted risk is insured in
the reinsurance agreement. The reinsurer's contractual relationship is with the direct
insurer, not the original insured, and the latter has no interest in and is generally not privy
to the contract of reinsurance. Put simply, reinsurance is the "insurance of an insurance."
By its nature, reinsurance contracts are issued in favor of the direct insurer because the
subject of such contracts is the direct insurer's risk-in this case, Plaridel's contingent
liability to MSAPL and not the risk assumed under the original policy. The requirement
under Section 4, Rule 57 of the Rules of Court that the applicant's bond be executed to
the adverse party necessarily pertains only to the attachment bond itself and not to any
underlying reinsurance contract. With or without reinsurance, the obligation of the surety
to the party against whom the writ of attachment is issued remains the same.
 MALAYAN INSURANCE CO. V. LIN

G.R. No. 207277

January 16, 2017

Insurance: Commissioner; Nature of Cases in IC

FACTS:

Emma Lin owned six warehouses in Plaridel, Bulacan. The five warehouses were
gutted by fire. A Fire Clearance Certification was issued by the Bureau of Fire
Protection after having determined that the cause of fire was accidental. Despite this,
Malayan denied Lin’s insurance claim based on the findings of the forensic investigators
hired by Malayan that the fire was caused by arson and not accidental. She sought
assistance from the Insurance Commission (IC) and after meeting among the parties, IC
recommended that Malayan pay Lin’s insurance claim. Despite such recommendation,
Malayan refused to pay Lin’s insurance claim.

Lin filed a civil case praying that Malayan pay her insurance claim plus interest.
Subsequently, she filed before the IC an administrative case against Malayan alleging
that Malayan should be liable for unfair claim settlement practice under Section 241 in
relation to Section 247 of the Insurance Code due to unjustified refusal to settle her
claim. Malayan filed a Motion to Dismiss the Civil Case based on Forum Shopping.

Issue: Whether or not there was willful and deliberate forum shopping despite the fact
that the civil case and the administrative case both seek the payment of the same fire
insurance claim.

Held:

No. The settled rule is that criminal and civil cases are altogether different from
administrative matters, such that the disposition in the first two will not inevitably govern
the third and vice versa." The findings of the trial court will not necessarily foreclose the
administrative case before the IC, or vice versa. Causes of action in the civil case are
predicated on the insurers' refusal to pay her fire insurance claims despite notice, proofs
of losses and other supporting documents. The principal issue then that must be
resolved by the trial court is whether or not petitioner is entitled to the payment of her
insurance claims and damages. The matter of whether or not there is unreasonable
delay or denial of the claims is merely an incident to be resolved by the trial court,
necessary to ascertain petitioner's right to claim damages, as prescribed by Section 244
of the Insurance Code.

On the other hand, the core, if not the sole bone of contention in the administrative
case, is the issue of whether or not there was unreasonable delay or denial of the
claims of petitioner, and if in the affirmative, whether or not that would justify the
suspension or revocation of the insurers' licenses.

Moreover, in Civil Case No. Q-95-23135, petitioner must establish her case by
a preponderance of evidence, or simply put, such evidence that is of greater weight, or
more convincing than that which is offered in opposition to it. In Adm. Case No. RD-156,
the degree of proof required of petitioner to establish her claim is substantial
evidence, which has been defined as that amount of relevant evidence that a
reasonable mind might accept as adequate to justify the conclusion.

In addition, the procedure to be followed by the trial court is governed by the Rules of
Court, while the [IC] has its own set of rules and it is not bound by the rigidities of
technical rules of procedure. These two bodies conduct independent means of
ascertaining the ultimate facts of their respective cases that will serve as basis for their
respective decisions.
 INSULAR LIFE ASSURANCE COMPANY v. PAZ Y. KHU, FELIPE Y. KHU JR.,

FREDERICK Y. KHU

G.R. No. 195176

18 April 2016

Characteristics/Nature of Insurance Contracts; Incontestability; Stric Construction

Against the Insurer

FACTS: Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular
Life. Felipe did not declare any illness or adverse medical condition. Insular Life
thereafter issued him a policy with a face value of Php 1 million. This took effect on June
22, 1997. Felipe’s policy lapsed due to nonpayment of the premium covering the period
from June 22, 1999 to June 23, 2000.

On Sept. 7, 1999, Felipe applied for the reinstatement of his policy and paid Php
25,020.00 as premium. The new policy had identical information as to that of the original
policy. Insular Life advised Felipe that his application for reinstatement may only
be considered if he agreed to certain conditions such as payment of additional
premium and the cancellation of the riders pertaining to premium waiver and accidental
death benefits, wherein Felipe agreed to those terms. The following changes were made
on the policy effective June 22, 1999

Felipe paid the annual premiums for the years 2000 to 2002. On Sept. 22, 2001, Felipe
died. The respondents filed with Insular Life a claim for the benefits under the reinstated
policy. But it was denied by Insular, and it rescinded the policy be

cause of concealment and misrepresentation by Felipe. The respondents instituted an

action for specific performance with damages.

ISSUE: Is the reinstated life insurance policy already considered incontestable at the
time of Felipe’s death?
HELD:

Yes. The Insurance Code pertinently provides under Section 48 that whenever a right to
rescind a contract of insurance is given to the insurer by any provision of this chapter,
such right must be exercised previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been
in force during the lifetime of the insured for a period of two years from the date of its
issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio
or is rescindible by reason of the fraudulent concealment or misrepresentation of the
insured or his agent. The insurance contract is considered to have been reinstated
on June 22, 1999. The reinstatement of an insurance contract should be reckoned from
the date when the same was approved by the insurer. The date of last reinstatement
mentioned in Sec. 48 of the Insurance Code pertains to the date that the insurer approved
the application for reinstatement. Therefore, the insurance contract was deemed to be
reinstated on June 22, 1999 and considered as incontestable at the time of Felipe’s death
on Sept. 22, 2001.
 Sun Life of Canada (Philippines), Inc. vs. Ma. Daisy S. Sibya, et al.
G.R. No. 211212; June 08, 2016

Devices Used for Ascertaining and Controlling Risk and Loss; Concealment;
Representation; Incontestability Clause

Facts: Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In
his Application for Insurance, he indicated that he had sought advice for kidney problems.
On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued an
Insurance Policy. The policy indicated the respondents as beneficiaries and entitles them
to a death benefit of P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5,
2021, or a sum of money if Atty. Jesus Jr. is still living on the endowment date.

On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound. Ma. Daisy the filed
a claim with Sun Life to seek the death benefits indicated in his insurance policy. However,
Sun Life denied the claim on the ground that the details on Atty. Jesus Jr.'s medical history
were not disclosed in his application. Sun Life tendered a check representing the refund
of the premiums paid by Atty. Jesus Jr.

Sun Life filed a Complaint for Rescission before the RTC and prayed for judicial
confirmation of Atty. Jesus Jr.'s rescission of insurance policy. Sun Life alleged that Atty.
Jesus Jr. did not disclose in his insurance application his previous medical treatment at
the National Kidney Transplant Institute. According to Sun Life, the undisclosed fact
suggested that the insured was in "renal failure" and at a high risk medical condition.
Consequently, had it known such fact, it would not have issued the insurance policy.

The respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his
application for insurance. They averred that Atty. Jesus Jr. was in good faith when he
signed the insurance application and even authorized Sun Life to inquire further into his
medical history for verification purposes.

The RTC held that Atty. Jesus Jr. did not commit material concealment and
misrepresentation when he applied for life insurance with Sun Life. It observed that given
the disclosures and the waiver and authorization to investigate executed by Atty. Jesus
Jr. to Sun Life, the latter had all the means of ascertaining the facts allegedly concealed
by the applicant. On appeal, the CA affirmed the RTC decision in ordering Sun Life to pay
death benefits and damages in favor of the respondents.

Issues:
1. May Sunlife rescind the insurance policy of Atty. Jesus, Jr.?
2. Was there concealment or misrepresentation when Atty. Jesus Jr. submitted his
insurance application with Sun Life?

Ruling:
1. No. Sunlife may no longer rescind the insurance policy in question.
Under Section 48 of the ICP, an insurer is given two years - from the effectivity of a life
insurance contract and while the insured is alive - to discover or prove that the policy is
void ab initio or is rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent. After the two-year period lapses, or
when the insured dies within the period, the insurer must make good on the policy,
even though the policy was obtained by fraud, concealment, or
misrepresentation. This is not to say that insurance fraud must be rewarded, but that
insurers who recklessly and indiscriminately solicit and obtain business must be
penalized, for such recklessness and lack of discrimination ultimately work to the
detriment of bona fide takers of insurance and the public in general.23 (Manila Bankers
Life Insurance Corporation v. Aban)

In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it
has two years from its issuance, to investigate and verify whether the policy was obtained
by fraud, concealment, or misrepresentation. Upon the death of Atty. Jesus Jr., however,
on May 11, 2001, or a mere three months from the issuance of the policy, Sun Life loses
its right to rescind the policy. As discussed in Manila Bankers, the death of the insured
within the two-year period will render the right of the insurer to rescind the policy nugatory.
As such, the incontestability period will now set in.

2. There was no concealment or misrepresentation on the part of Atty. Jesus Jr.

committed concealment and misrepresentation.

Atty. Jesus Jr. admitted in his application his medical treatment for kidney ailment.
Moreover, he executed an authorization in favor of Sun Life to conduct investigation in
reference with his medical history. Given the express language of the Authorization, it
cannot be said that Atty. Jesus Jr. concealed his medical history since Sun Life had the
means of ascertaining Atty. Jesus Jr.'s medical record.

With regard to the allegations of misrepresentation, it should be noted that Atty. Jesus Jr.
was not a medical doctor, and his answer "no recurrence" may be construed as an honest
opinion. Where matters of opinion or judgment are called for, answers made in good faith
and without intent to deceive will not avoid a policy even though they are untrue.

The intent to defraud on the part of the insured must be ascertained to merit rescission of
the insurance contract. Concealment as a defense for the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the provider or insurer.

In the present case, Sun Life failed to clearly and satisfactorily establish its allegations,
and is therefore liable to pay the proceeds of the insurance.
 BANK OF THE PHILIPPINE ISLANDS AND FGU INSURANCE CORPORATION v.
YOLANDA LAINGO
G.R. No. 205206
March 16, 2016

Insurance Law – Filing of Claim

Facts:
Rheozel Laingo, son of respondent Yolanda Laingo, opened a Platinum 2-in-1
Savings and Insurance account with petitioner BPI. The Platinum 2-in-1 Savings and
Insurance account is a savings account where depositors are automatically covered by
an insurance policy against disability and death issued by petitioner FGU Insurance
Corporation (now know as BPI/MS Insurance Corporation). Rhoezel’s beneficiary is
Laingo. Rhoezel died due to a vehicular accident. Laingo instructed the family’s personal
secretary Alice Torbanos to go to BPI and insure about the savings account of Rhoezel
to be used for the latter’s burial and funeral expenses. BPI granted the withdrawal worth
P995,000.00. 2 years later, Rheozel’s sister Rhealyn found the Personal Accident
Insurance Coverage Certificate issued by FGU Insurance. Laingo sent 2 letters
requesting them to process her claim as beneficiary of the policy, FGU Insurance denied
the same stating that she should have filed the claim within 3 months from the death of
Rheozel as required by Par. 15 of the Personal Accident Insurance Coverage Certificate.
Laingo filed a Complaint for Specific Performance with Damages and Attorney’s
Fees with the RTC against herein petitioner. RTC ruled in favor of BPI. On appeal, CA
reversed the ruling stating that Laingo could not be expected to do an obligation which
she did not know existed.

Issue:
Whether Laingo, named beneficiary and who had no knowledge of the existence of the
insurance contract, is bound by the 3 month deadline for filing a written notice of claim
upon the death of the insured.

Decision/Held:
BPI offered a deposit savings account with life and disability insurance coverage
to its customers called the Platinum 2-in-1 Savings and Insurance account. This was a
marketing strategy promoted by BPI in order to entice customers to invest their money
with the added benefit of an insurance policy. As the main proponent of the 2-in-1 deposit
account, BPI tied up with its affiliate, FGU Insurance, as its partner. BPI acted as agent
of FGU Insurance with respect to the insurance feature of its own marketed product.
Under the law, an agent is one who binds himself to render some service or to do
something in representation of another. BPI, as agent of FGU Insurance, had the primary
responsibility to ensure that the 2-in-1 account be reasonably carried out with full
disclosure to the parties concerned, particularly the beneficiaries. Thus, it was incumbent
upon BPI to give proper notice of the existence of the insurance coverage and the
stipulation in the insurance contract for filing a claim to Laingo, as Rheozel's beneficiary,
upon the latter's death.
 BPI had been informed of Rheozel's death by the latter's family when they claimed
for the money in Rheozel’s savings account to be used for the funeral and burial
expenses. Rheozel’s death was also published in a newspaper being a prominent figure,
and an employee of the bank went to the funeral of Rheozel. There is a rationale in the
contract of agency, which flows from the "doctrine of representation," that notice to the
agent is notice to the principal. Since BPI is the agent of FGU Insurance, then such notice
of death to BPI is considered as notice to FGU Insurance as well. In short, there was
timely notice of Rheozel's death given to FGU Insurance within three months from
Rheozel's death as required by the insurance company. BPI, as agent of FGU Insurance,
fell short in notifying Laingo of the existence of the insurance policy, Laingo had no means
to ascertain that she was entitled to the insurance claim. It would be unfair for Laingo to
shoulder the burden of loss when BPI was remiss in its duty to properly notify her that she
was a beneficiary.
 PARAMOUNT LIFE & GENERAL INSURANCE CORP. vs CASTRO

G.R. No. 195728

April 19, 2016

Subject/Topic: Insurance Law – Mortgage redemption insurance

Relevant facts:

Virgilio Castro, husband and father of the respondents - obtained a housing loan from the
PPSBI in the amount of P1.5 million. PPSBI required Virgilio to apply for a mortgage
redemption insurance (MRI) from Paramount to cover the loan. In his application for the
said insurance policy, Virgilio named Cherry and Glenn as beneficiaries. Paramount
issued the policy in his favor, subject to the terms and conditions of Group Master Policy
of PPSBI.

Virgilio then died of septic shock. Consequently, a claim was filed for death benefits
under the individual insurance coverage issued under the group policy. Paramount
however denied the claim, on the ground of the failure of Virgilio to disclose material
information, or material concealment or misrepresentation by answering "no" to questions
on whether he had any adverse health history and whether he had sought medical advice
or consultation concerning it. Paramount prayed that the policy covering the individual
insurance of Virgilio be declared null and void by reason of material concealment and
misrepresentation.

Issues relevant to Commercial Law:

Whether the CA erred in remanding the case to the RTC for the admission of the Third-
Party Complaint against PPSBI in the nullification case instituted by Paramount since they
theorized that by virtue of the death of Virgilio and the mandate of the group insurance
policy in relation to his individual insurance policy, the PPSBI stepped into the shoes of
Cherry and Glenn by virtue of the Mortgage Redemption Insurance.
Decision/Held:

No.

The soundness of admitting a third-party complaint hinges on causal connection between

the claim of the plaintiff in his complaint and a claim for contribution, indemnity or other
relief of the defendant against the third-party defendant.

In this case, the Castro’s stand to incur a bad debt to the PPSBI - the exact event that is
insured against by Group Master Policy - in the event that Paramount succeeds in
nullifying Virgilio's Individual Insurance Certificate.

The CA correctly ruled that to admit the Castro’s Third-Party Complaint, in which they can
assert against the PPSBI an independent claim they would otherwise assert in another
action, would prevent multiplicity of suits. Considering also that the original case from
which these present Petitions arose has not yet been resolved, the Court deems it proper
to have all the parties air all their possible grievances in the original case still pending with
the RTC.
 CAPITAL INSURANCE AND SURETY CO., INC v. DEL MONTE MOTOR WORKS.
G.R. No. 159979
December 09, 2015

Topic: Insurance Law – Security Deposit

Relevant facts:

Respondent sued Vilfran Liner, Inc., Hilaria F. Villegas and Maura F. Villegas in the (RTC)
to recover the unpaid billings .The RTC, to which the case was assigned, issued the writ
of preliminary attachment, which the sheriff served on the defendants, resulting in the levy
of 10 buses and three parcels of land belonging to the defendants. The sheriff also sent
notices of garnishment of the defendants' funds.

The levy and garnishment prompted defendant Maura F. Villegas to file an Extremely
Urgent Motion to Discharge Upon Filing of a Counterbond, attaching thereto CISCO
Bond. The RTC approved the counterbond and discharged the writ of preliminary
attachment.

RTC rendered its decision in favor of the respondent. To enforce the decision against the
counterbond the respondent moved for execution. The RTC granted the motion, over the
petitioner's opposition. Serving the writ of execution, the sheriff levied against the
petitioner's personal properties, the sheriff also served a notice of garnishment against
the security deposit of the petitioner in the Insurance Commission.

The sheriff served a copy of the resolution on the then Insurance Commissioner Edgardo
T. Malinis, with the request for him to release the security deposit. However, Insurance
Commissioner Malinis turned down the request to release, citing Section 203 of the
Insurance Code, which expressly provided that the security deposit was exempt from
execution.

Issue related to Commercial Law:

Whether or not the security deposit is subject to levy or execution.

Held:

No. Section 203 of the Insurance Code provides as follows:

Every domestic insurance company shall, to the extent of an amount equal in value to
twenty-five per centum of the minimum paid-up capital required under section one
hundred eighty-eight, invest its funds only in securities, satisfactory to the Commissioner,
consisting of bonds or other evidences of debt of the Government of the Philippines or its
political subdivisions or instrumentalities, or of government-owned or controlled
corporations and entities, including the Central Bank of the Philippines: Provided, That
such investments shall at all times be maintained free from any lien or encumbrance; and
Provided, further, That such securities shall be deposited with and held by the
Commissioner for the faithful performance by the depositing insurer of all its obligations
under its insurance contracts. The provisions of section one hundred ninety-two shall, as
far as practicable, apply to the securities deposited under this section.

Except as otherwise provided in this Code, no judgment creditor or other claimant

shall have the right to levy upon any securities of the insurer held on deposit under
this section or held on deposit pursuant to the requirement of the Commissioner.

The forthright text of provision indicates that the security deposit is exempt from levy by
a judgment creditor or any other claimant. This exemption has been recognized in several
rulings, particularly in Republic v. Del Monte Motors, Inc. the prequel case for this ruling,
where the Court has ruled:

x x x As worded, the law expressly and clearly states that the security deposit shall be (1)
answerable for all the obligations of the depositing insurer under its insurance contracts;
(2) at all times free from any liens or encumbrance; and (3) exempt from levy by any
claimant.

To be sure, CISCO, though presently under conservatorship, has valid outstanding

policies. Its policy holders have a right under the law to be equally protected by its security
deposit. To allow the garnishment of that deposit would impair the fund,by decreasing it
to less than the percentage of paid-up capital that the law requires to be maintained.
Further, this move would create, in favor of respondent, a preference of credit over the
other policy holders and beneficiaries.

Republic v. Del Monte Motors, Inc.31 also spelled out the purpose for the enactment of
Section 203 of the Insurance Code, to wit:

Basic is the statutory construction rule that provisions of a statute should be construed in
accordance with the purpose for which it was enacted. That is, the securities are held as
a contingency fund to answer for the claims against the insurance company by all its
policy holders and their beneficiaries. This step is taken in the event that the company
becomes insolvent or otherwise unable to satisfy the claims against it. Thus, a single
claimant may not lay stake on the securities to the exclusion of all others. The other
parties may have their own claims against the insurance company under other insurance
contracts it has entered into.

What right, if any, did the respondent have in the petitioner's security deposit?

According to Republic v. Del Monte Motors, Inc. the right to claim against the security
deposit is dependent on the solvency of the insurance company, and is subject to all other
obligations of the insurance company arising from its insurance contracts. Accordingly,
the respondent's interest in the security deposit could only be inchoate or a mere
expectancy, and thus had no attribute as property.
 LOADSTAR SHIPPING COMPANY, INCORPORATED and LOADSTAR
INTERNATIONAL SHIPPING COMPANY, INCORPORATED, Petitioners,
vs.
MALAYAN INSURANCE COMPANY, INCORPORATED, Respondent.

G.R. No. 185565

November 26, 2014

Insurance Law-- Right of Subrogation

FACTS:

Loadstar International Shipping, Inc. (Loadstar Shipping) and Philippine Associated

Smelting and Refining Corporation (PASAR) entered into a Contract of Affreightment for
domestic bulk transport of the latter’s copper concentrates. Copper concentrates were
loaded in MV "Bobcat", a marine vessel owned by Loadstar International Shipping Co.,
Inc. (Loadstar International) and operated by Loadstar Shipping under a charter party
agreement. The shipper and consignee under the Bill of Lading are Philex Mining
Corporation (Philex) and PASAR, respectively. The cargo was insured with Malayan.

M/V "Bobcat" sailed from Poro Point, San Fernando, La Union bound for Isabel, Leyte.
During the sail, a crack on starboard side of the main deck caused seawater to enter
and wet the cargo inside Cargo Hold No. 2. The contaminated copper concentrates
were rejected by PASAR. PASAR then sent a formal notice of claim in the amount of
[P]37,477,361.31 to Loadstar Shipping. Malayan paid PASAR the amount of
[P]32,351,102.32 on the basis of the recommendation of the surveyor.

Malayan wrote Loadstar Shipping informing the latter of the acceptance of PASAR’s
proposal to take the damaged copper concentrates at a residual value of
US$90,000.00. Loadstar Shipping wrote Malayan requesting for the reversal of its
decision to accept PASAR’s proposal and the conduct of a public bidding to allow
Loadstar Shipping to match or top PASAR’s bid by 10%.

PASAR signed a subrogation receipt in favor of Malayan.

To recover the amount paid and in the exercise of its right of subrogation, Malayan
demanded reimbursement from Loadstar Shipping, which refused to comply. Malayan
instituted with RTC a complaint for damages. RTC ruled in favor of Loadstar. On
appeal, the CA reversed.

Issue related to Commercial Law:

Is Malayan, by virtue of its payment to PASAR, entitled to automatic right of recovery by
virtue of subrogation?

Held:

No, Malayan is not entitled to automatic recovery by virtue of subrogation.

Malayan’s claim against the petitioners is based on subrogation to the rights possessed
by PASAR as consignee of the allegedly damaged goods. The right of subrogation
stems from Article 2207 of the New Civil Code which states "If the plaintiff’s property
has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrong doer or the
person who has violated the contract. xxx"

The right of subrogation is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer."

"Subrogation is the substitution of one person in the place of another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities. The rights to which the
subrogee succeeds are the same as, but not greater than, those of the person for whom
he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor
did not have. In other words, a subrogee cannot succeed to a right not possessed by
the subrogor. A subrogee in effect steps into the shoes of the insured and can recover
only if the insured likewise could have recovered." Consequently, an insurer indemnifies
the insured based on the loss or injury the latter actually suffered from. If there is no
loss or injury, then there is no obligation on the part of the insurer to indemnify the
insured. Should the insurer pay the insured and it turns out that indemnification is not
due, or if due, the amount paid is excessive, the insurer takes the risk of not being able
to seek recompense from the alleged wrongdoer. This is because the supposed
subrogor did not possess the right to be indemnified and therefore, no right to collect is
passed on to the subrogee.

PASAR and Malayan never proved the actual damages sustained by PASAR. It is a
flawed notion to merely accept that the salvage value of the goods is US$90,000.00,
since the price was arbitrarily fixed between PASAR and Malayan.

"The burden of proof is on the party who would be defeated if no evidence would be
presented on either side. The burden is to establish one’s case by a preponderance of
evidence which means that the evidence, as a whole, adduced by one side, is superior
to that of the other. Actual damages are not presumed. The claimant must prove the
actual amount of loss with a reasonable degree of certainty premised upon competent
proof and on the best evidence obtainable. Specific facts that could afford a basis for
measuring whatever compensatory or actual damages are borne must be pointed out.
Actual damages cannot be anchored on mere surmises, speculations or conjectures."

Hence, petition is granted. The decision of the CA is reversed and set aside. The
decision of the RTC is reinstated.
 SUN LIFE OF CANADA V. SANDRA TAN KIT

G.R. NO. 183272

OCTOBER 15, 2014

Subject/Topic: Insurance Law – Premium (Interest rate on refund of premiums)

Relevant facts:

Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit
(Norberto), whose application for a life insurance policy, was granted by petitioner on
October 28, 1999. On February 19, 2001, or within the two-year contestability
period, Norberto died. Consequently, Tan Kit filed a claim under the subject policy.
Petitioner denied Tan Kit’s claim on account of Norberto’s concealment of material
information in his insurance application. Petitioner opined that its liability is limited to the
refund of all the premiums paid. Accordingly, it enclosed in the said letter a check for
P13,080.93 representing the premium refund.

Tan Kit refused to accept the check and insisted on the payment of the insurance
proceeds. Petitioner filed a Complaint for Rescission of Insurance Contract before the
RTC which ruled in her favor. The CA reversed the RTC ruling and ruled that petitioner
pay Tan Kit the premiums paid with 12% interest per annum from the time of insured’s
death until fully paid.

Issues relevant to Commercial Law:

Whether petitioner is liable to pay interest on the premium to be refunded to respondents.

Decision/Held:

No, petitioner is not liable to pay interest on the premium to be refunded as he was neither
in delay nor was it remiss in complying with its obligation in cases of cancellation of health
care insurance.
There are two types of interest – monetary and compensatory. Monetary interest refers
to the compensation set by the parties for the use or forbearance of money. On the other
hand, compensatory interest refers to the penalty or indemnity for damages imposed by
law or by the courts. The interest imposed by the CA is not monetary interest because
aside from the fact that there is no use or forbearance of money involved in this case, the
subject interest was not one which was agreed upon by the parties in writing. In this case,
it is undisputed that simultaneous to its giving of notice to respondents that it was
rescinding the policy due to concealment, petitioner tendered the refund of premium by
attaching to the said notice a check representing the amount of refund. However,
respondents refused to accept the same since they were seeking for the release of the
proceeds of the policy. Moreover, we find that petitioner did not incur delay or unjustifiably
deny the claim.

Based on the foregoing, petitioner properly complied with its obligation under the law and
contract. Hence, it should not be made liable to pay compensatory interest.
 ALVAREZ II V. SUN LIFE OF CANADA

G.R. NO. 206674

SEPTEMBER 29, 2014

Insurance Law – Concealment / Incontestability Clause

Relevant facts: On December 1, 2003, respondent Sun Life of Canada (Philippines), Inc.
issued Life Insurance Policy to petitioner Erlinda V. Alvarez II covering the life of her
mother Erlinda V. Alvarez, the insured, with a face value of P500,000.00 payable upon
the death of said insured. On April 27, 2005, the insured passed away. Thereafter,
respondent sent petitioner a letter requiring the submission of documents to facilitate her
claim under the policy, one of which was an authorization of any physician who has
attended to the insured to give the respondent details on the prior medical history thereof.
Discovering several medical conditions which pre-dated the application for the policy,
respondent sent petitioner another letter declaring the policy void and denying petitioner's
claim therefrom. Specifically, it discovered that in 2003, the insured sought consultations
with the following: (1) University of Santo Tomas (USD Hospital, which found her to be
suffering from stable angina, atherosclerosis, and lateral wall ischemia; and (2) AIM
Imaging Medical Services, which likewise found her to be suffering from lateral wall
ischemia. Respondent refused to pay for the proceeds of the policy. Hence, petitioner
filed a breach of contract with the RTC. RTC ruled in favor of the petitioner. CA reversed
RTC’s ruling holding that petitioner concealed material facts and that the respondent is
not barred by the incontestability clause.

Issues:

1. Is the petitioner guilty of concealment of material facts?

2. Is the respondent barred by the incontestability clause in rescinding the contract of

insurance?

Decision/Held:

1. Yes, the petitioner is guilty of concealment.

Section 27 of the Insurance Code provides that a concealment, whether
intentional or unintentional, entitles the injured party to rescind a contract of
insurance. Concealment, according to the same Code, is a neglect to
communicate that which a party knows and ought to communicate. A party to an
insurance contract, therefore, is obliged to communicate all facts within his
knowledge which are material to the same, to be determined by the probable and
 reasonable influence of the facts upon the party to whom the communication is
due, in forming his estimate of the disadvantages of the proposed contract, or in
making his inquiries.
In the case at hand, it is undisputed that prior to the approval of the insured's
insurance policy and during the stage of her application, she did not disclose the
fact that she consulted with the UST Hospital and the AIM Imaging Medical
Services which diagnosed her to be suffering from stable angina, atherosclerosis,
and lateral wall ischemia.
2. No, the respondent is not barred by the incontestability clause.
Section 48(2) of the Insurance Code provides that after a policy of life
insurance made payable on the death of the insured shall have been in force during
the lifetime of the insured for a period of two (2) years from the date of its issue or
of its last reinstatement, the insurer cannot prove that the policy is void ab initio or
is rescindable by reason of the fraudulent concealment or misrepresentation of the
insured or his agent.
The insured herein died on April 27, 2005 while the insurance policy was
issued on December 1, 2003. Hence, since the incontestability period of two years
had not yet set in, respondent was not barred from rescinding the contract on the
ground of concealment or misrepresentation, receipt of premium payments from
petitioner, notwithstanding.
 H.H. HOLLERO CONSTRUCTION, INC. v. GOVERNMENT SERVICE INSURANCE
SYSTEM and POOL OF MACHINERY INSURERS

G.R. No. 152334

September 24, 2014

Subject/Topic: Period of Prescription

Facts: In 1988, the GSIS and petitioner entered into a Project Agreement (Agreement)
whereby the latter undertook the development of a GSIS housing project known as
Modesta Village Section B (Project). Petitioner obligated itself to insure the Project,
including all the improvements, upon the execution of the Agreement under a
Contractors’ All Risks (CAR) Insurance with the GSIS General Insurance Department
for an amount equal to its cost or sound value, which shall not be subject to any
automatic annual reduction. Pursuant to its undertaking, petitioner secured policies for
land development and for the construction of twenty (20) housing units. In turn, the
GSIS reinsured the land development with respondent Pool of Machinery Insurers
(Pool). Under both policies, it was provided that: (a) there must be prior notice of claim
for loss, damage or liability within fourteen (14) days from the occurrence of the loss or
damage; (b) all benefits thereunder shall be forfeited if no action is instituted within
twelve(12) months after the rejection of the claim for loss, damage or liability; and (c) if
the sum insured is found to be less than the amount required to be insured, the amount
recoverable shall be reduced to such proportion before taking into account the
deductibles stated in the schedule (average clause provision).

During the construction, three (3) typhoons hit the country, namely, Typhoon Biring,
Typhoon Huaning, and Typhoon Saling, which caused considerable damage to the
Project. Accordingly, petitioner filed several claims for indemnity with the GSIS on June
30, 1988, August 25, 1988, and October 18, 1989, respectively. In a letter dated April
26, 1990, the GSIS rejected petitioner’s indemnity claims for the damages wrought by
Typhoons Biring and Huaning, finding that no amount is recoverable pursuant to the
average clause provision under the policies. In a letter dated June 21, 1990, the GSIS
similarly rejected petitioner’s indemnity claim for damages wrought by Typhoon Saling
on a "no loss" basis, it appearing from its records that the policies were not renewed
before the onset of the said typhoon. In a letter dated April 18, 1991, petitioner
impugned the rejection of its claims for damages/loss on account of Typhoon Saling,
and reiterated its demand for the settlement of its claims.

On September 27, 1991, petitioner filed a complaint for sum of money and damages
before the RTC, which was opposed by the GSIS through a Motion to Dismiss on the
ground that the causes of action stated therein are barred by the twelve-month limitation
provided under the policies, i.e., the complaint was filed more than one(1) year from the
rejection of the indemnity claims. The RTC denied the said motion; hence, the GSIS
filed its answer with counterclaims for litigation expenses, attorney’s fees, and
exemplary damages. Subsequently, the GSIS filed a third party complaint for
indemnification against Pool, the reinsurer. In its judgment, the RTC granted petitioner’s
indemnity claims.

Dissatisfied, the GSIS elevated the matter to the CA, which set aside and reversed the
RTC judgment, thereby dismissing the complaint. It ruled that the complaint filed on
September 27, 1991 was barred by prescription, having been commenced beyond the
twelve-month limitation provided under the policies, reckoned from the final rejection of
the indemnity claims on April 26, 1990 and June 21, 1990.

Issue: Did the CA commit reversible error in dismissing the complaint on the ground of
prescription?

Held: NO. The CA did not err in dismissing the complaint for sum of money and
damages under the insurance policies on the ground of prescription.

Contracts of insurance, like other contracts, are to be construed according to the sense
and meaning of the terms which the parties themselves have used. If such terms are
clear and unambiguous, they must be taken and understood in their plain, ordinary, and
popular sense.

In this case, Section 10 of the General Conditions of the subject policies commonly
read: “If a claim is in any respect fraudulent, or if any false declaration is made or used
in support thereof, or if any fraudulent means or devices are used by the Insured or
anyone acting on his behalf to obtain any benefit under this Policy, or if a claim is made
and rejected and no action or suit is commenced within twelve months after such
rejection or, in case of arbitration taking place as provided herein, within twelve months
after the Arbitrator or Arbitrators or Umpire have made their award, all benefit under this
Policy shall be forfeited.

A perusal of the letter dated April 26, 1990 shows that the GSIS denied petitioner’s
indemnity claims wrought by Typhoons Biring and Huaning, it appearing that no amount
was recoverable under the policies. While the GSIS gave petitioner the opportunity to
dispute its findings, neither of the parties pursued any further action on the matter; this
logically shows that they deemed the said letter as a rejection of the claims. Lest it
cause any confusion, the statement in that letter pertaining to any queries petitioner
may have on the denial should be construed, at best, as a form of notice to the former
that it had the opportunity to seek reconsideration of the GSIS’s rejection. Surely,
petitioner cannot construe the said letter to be a mere "tentative resolution." In fact,
despite its disavowals, petitioner admitted in its pleadings that the GSIS indeed denied
its claim through the aforementioned letter.

This, it is clear that petitioner's causes of action for indemnity respectively accrued from
its receipt of the letters dated April 26, 1990 and June 21, 1990, or the date the GSIS
rejected its claims in the first instance. Consequently, given that it allowed more than
twelve (12) months to lapse before filing the necessary complaint before the RTC on
September 27, 1991, its causes of action had already prescribed.
 PEOPLE'S TRANS-EAST ASIA INSURANCE CORPORATION, a.k.a. PEOPLE'S
GENERAL INSURANCE CORPORATION, Petitioner, vs. DOCTORS OF NEW
MILLENNIUM HOLDINGS, INC., Respondent.
G.R. No. 172404
August 13, 2014
INSURANCE LAW-- SURETY

Facts: Doctors of New Millennium Holdings, Inc. is a domestic corporation comprised of

about 80 doctors. It entered into a construction and development agreement (signed
agreement) with Million State Development Corporation, a contractor, for the construction
of a 200-bed capacity hospital.
According to the terms of the signed agreement, Doctors of New Millennium
obliged itself to pay ₱10,000,000.00 to Million State Development at the time of the
signing of the agreement to commence the construction of the hospital. Million State
Development was to shoulder 95% of the project cost and committed itself to secure
₱385,000,000.00 within 25 banking days from Doctors of New Millennium’s initial
payment, part of which was to be used for the purchase of the lot where the hospital was
to be constructed.
As part of the conditions prior to the initial payment, Million State Development
submitted a surety bond of ₱10,000,000.00 to Doctors of New Millennium. The surety
bond was issued by People’s Trans-East Asia Insurance Corporation, now known as
People’s General Insurance Corporation. Doctors of New Millennium, on the other hand,
made the initial payment of ₱10,000,000.00.
Million State Development, however, failed to comply with its obligation to Doctors
of New Millenium. As a result, Doctors of New Millennium sent a demand letter to People’s
General Insurance for the return of its initial payment of ₱10,000,000.00, in accordance
with its surety bond.
The surety claim was denied on the ground that the guarantee only extended to
"the full and faithful construction of a First Class 200 hospital bed building" and not to "the
‘funding’ of the construction of the hospital. Petitioner alleged that without its knowledge
and consent, Doctors of New Millennium and Million State Development substantially
altered the conditions of the draft agreement by inserting the clause” or the Project
Owner’s waiver," which appeared in the signed agreement. It explains that under the draft
agreement, Million State Development "must hurdle certain stringent requirements"
before the ₱10,000,000.00 initial payment could be released to it. It added that the clause
"effectively deprived [it] of the opportunity to objectively assess the real risk of its
undertaking and fix the reasonable rate of premium thereon." This, it argues, constituted
an implied novation, which should automatically relieve it from its undertaking as a surety
as it makes its obligation more onerous
On the other hand, Doctors of New Millennium, testified that the surety bond was
entered into to protect the release of the ₱10,000,000.00 initial mobilization fund. It added
that there was no novation since the draft agreement was not yet a valid and binding
contract between it and Million State Development. It alleged that Million State
Development entered into a surety agreement with People’s General Insurance on the
basis of the draft agreement without its knowledge.
Issue: Is the disputed clause material to the respondent’s undertaking to guarantee
Millions State Development’s initial payment?
Held: No. The disputed clause is not material for the respondent to be liable on its
undertaking to guarantee MSD’s initial payment.
Sec. 176 of the Insurance Code provides that the liability of the surety or sureties
shall be joint and several with the obligor and shall be limited to the amount of the bond.
It is determined strictly by the terms of the contract of suretyship in relation to the principal
contract between the obligor and the obligee.
In the case given, Million State Development’s obligations under the contract
subsist regardless of whether respondent waives the conditions for the release of the
initial payment. Its obligation upon the release of the initial payment was for it to "make
available the funds constituting the Balance Payment in the amount of PhP 385,000,000
within 25 banking days from payment by the Project Owner of the Initial Payment. It is
this performance of this obligation that the surety primarily guarantees.
Petitioner cannot feign ignorance of Million State Development’s obligation to
provide the funds for the balance since this provision was present in both the draft
agreement and the signed agreement. Since Million State Development failed to fulfill its
obligation, the surety becomes jointly and severally liable for the amount of the bond.
 FORTUNE MEDICARE, INC. V. DAVID REOBERT AMORIN
G.R. NO. 195827
MARCH 12, 2014

Insurance Law – Non Life Insurance; Contract of Adhesion; Interpretation

FACTS: Amorin was a cardholder/member of Fortune. The terms of his medical coverage
were provided in a Health Care Contract executed by Fortune Care and the House of
Representatives, where Amorin was a permanent employee.

While on vacation in Honolulu, Hawaii, Amorin underwent an emergency surgery –

appendectomy, causing him to incur professional and hospitalization expenses of
US$7,242.35 and US$1,777.79, respectively. He attempted to recover from Fortune Care
the full amount but the company merely approved a reimbursement of ₱12,151.36, an
amount that was based on the average cost of appendectomy, net of medicare deduction,
if the procedure were performed in an accredited hospital in Metro Manila. Amorin
received under protest the approved amount, but asked for its adjustment to cover the
total amount of professional fees which he had paid, and eighty percent (80%) of the
approved standard charges based on "American standard", considering that the
emergency procedure occurred in the U.S.A. To support his claim, Amorin cited Section
3, Article V on Benefits and Coverages of the Health Care Contract:

A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-patient or out-

patient, the member shall be entitled to full coverage under the benefits provisions of the
Contract at any Fortune Care accredited hospitals subject only to the pertinent provision
of Article VII (Exclusions/Limitations) hereof. For emergency care attended by non-
affiliated physician (MSU), the member shall be reimbursed 80% of the professional fee
which should have been paid, had the member been treated by an affiliated physician.
The availment of emergency care from an unaffiliated physician shall not invalidate or
diminish any claim if it shall be shown to have been reasonably impossible to obtain such
emergency care from an affiliated physician.

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, Fortune Care shall reimburse the total
hospitalization cost including the professional fee (based on the total approved charges)
to a member who receives emergency care in a nonaccredited hospital. The above
coverage applies only to Emergency confinement within Philippine Territory. However, if
the emergency confinement occurs in a foreign territory, Fortune Care will be
obligated to reimburse or pay eighty (80%) percent of the approved standard
charges which shall cover the hospitalization costs and professional fees. x x x

Fortune Care denied Amorin’s request. It argued that the Health Care Contract did not
cover hospitalization costs and professional fees incurred in foreign countries, as the
contract’s operation was confined to Philippine territory. Further, it argued that its liability
to Amorin was extinguished upon the latter’s acceptance from the company of the amount
of ₱12,151.36. Hence, this case.

RTC: Dismissed Amorin’s complaint. Taking the contract as a whole, the RTC is
convinced that the parties intended to use the Philippine standard as basis.

Dissatisfied, Amorin appealed the RTC decision to the CA.

CA: Granted the appeal. In so ruling, the appellate court pointed out that, first, health care
agreements such as the subject Health Care Contract, being like insurance contracts,
must be liberally construed in favor of the subscriber. In case its provisions are doubtful
or reasonably susceptible of two interpretations, the construction conferring coverage is
to be adopted and exclusionary clauses of doubtful import should be strictly construed
against the provider. Second, the CA explained that there was nothing under Article V of
the Health Care Contract which provided that the Philippine standard should be used
even in the event of an emergency confinement in a foreign territory.

Fortune Care’s motion for reconsideration was denied in a Resolution. Hence, the filing
of the present petition for review on certiorari.

ISSUE: WON CA erred in ruling that the phrase "approved standard charges" is subject
to interpretation

HELD: NO. The Court finds no cogent reason to disturb the CA’s finding.

We emphasize that for purposes of determining the liability of a health care provider to its
members, jurisprudence holds that a health care agreement is in the nature of non-life
insurance, which is primarily a contract of indemnity. Once the member incurs hospital,
medical or any other expense arising from sickness, injury or other stipulated contingent,
the health care provider must pay for the same to the extent agreed upon under the
contract.

To aid in the interpretation of health care agreements, the Court laid down the following
guidelines in Philamcare Health Systems v. CA:
When the terms of insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from noncompliance with his
obligation. Being a contract of adhesion, the terms of an insurance contract are to
be construed strictly against the party which prepared the contract — the
insurer. By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the
insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally
applicable to Health Care Agreements. The phraseology used in medical or hospital
service contracts, such as the one at bar, must be liberally construed in favor of
the subscriber, and if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider.

As may be gleaned from the Health Care Contract, the parties contemplated the
possibility of emergency care in a foreign country. As the contract recognized Fortune
Care’s liability for emergency treatments even in foreign territories, it expressly limited its
liability only insofar as the percentage of hospitalization and professional fees that must
be paid or reimbursed was concerned, pegged at a mere 80% of the approved standard
charges.

The word "standard" was vague and ambiguous, as it could be susceptible of different
meanings. Plainly, the term "standard charges" could be read as referring to the
"hospitalization costs and professional fees" which were specifically cited as
compensable even when incurred in a foreign country. Contrary to Fortune Care’s
argument, from nowhere in the Health Care Contract could it be reasonably deduced that
these "standard charges" referred to the "Philippine standard", or that cost which would
have been incurred if the medical services were performed in an accredited hospital
situated in the Philippines. The parties to the Health Care Contract made a clear
distinction between emergency care in an accredited hospital, and that obtained from a
non-accredited hospital. The limitation on payment based on "Philippine standard" for
services of accredited physicians was expressly made applicable only in the case of an
emergency care in an accredited hospital.

The proper interpretation of the phrase "standard charges" could instead be correlated
with and reasonably inferred from the other provisions of Section 3(B), considering that
Amorin’s case fell under the second case, i.e., emergency care in a non-accredited
hospital. Rather than a determination of Philippine or American standards, the first part
of the provision speaks of the full reimbursement of "the total hospitalization cost including
the professional fee (based on the total approved charges) to a member who receives
emergency care in a non-accredited hospital" within the Philippines. Thus, for emergency
care in non-accredited hospitals, this cited clause declared the standard in the
determination of the amount to be paid, without any reference to and regardless of the
amounts that would have been payable if the treatment was done by an affiliated
physician or in an affiliated hospital. For treatments in foreign territories, the only
qualification was only as to the percentage, or 80% of that payable for treatments
performed in non-accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability
to costs that are applicable in the Philippines, the amount payable by Fortune Care should
not be limited to the cost of treatment in the Philippines, as to do so would result in the
clear disadvantage of its member. If, as Fortune Care argued, the premium and other
charges in the Health Care Contract were merely computed on assumption and risk under
Philippine cost and, that the American cost standard or any foreign country's cost was
never considered, such limitations should have been distinctly specified and clearly
reflected in the extent of coverage which the company voluntarily assumed.
Settled is the rule that ambiguities in a contract are interpreted against the party that
caused the ambiguity. "Any ambiguity in a contract whose terms are susceptible of
different interpretations must be read against the party who drafted it.
 MITSUBISHI MOTORS PHILIPPINES SALARIED EMPLOYEES UNION (MMPSEU),
v. MITSUBISHI MOTORS PHILIPPINES CORPORATION,

G.R. NO. 175773

June 17, 2013

Subject/Topic: (Insurance Law: Non-life insurance contract)

FACTS

The Collective Bargaining Agreement (CBA) of the parties in this case provides that the
company shoulder the hospitalization expenses of the dependents of covered employees
subject to certain limitations and restrictions. Accordingly, covered employees pay part
of the hospitalization insurance premium through monthly salary deduction while the
company, upon hospitalization of the covered employees’ dependents, shall pay the
hospitalization expenses incurred for the same.

The conflict arose when a portion of the hospitalization expenses of the covered
employees’ dependents were paid/shouldered by the dependent’s own health
insurance. While the company refused to pay the portion of the hospital expenses
already shouldered by the dependents’ own health insurance, the union insists that the
covered employees are entitled to the whole and undiminished amount of said hospital
expenses.

By this Petition for Review on Certiorari, petitioner Mitsubishi Motors Philippines Salaried
Employees Union (MMPSEU) assails the Decision and Resolution of the Court of Appeals
(CA) which reversed and set aside the Voluntary Arbitrator’s Decision and declared
respondent Mitsubishi Motors Philippines Corporation (MMPC) to be under no legal
obligation to pay its covered employees’ dependents’ hospitalization expenses which
were already shouldered by other health insurance companies.

ISSUE

Whether or not recovery from both the CBA and separate health cards is not prohibited
in the absence of any specific provision in the CBA
HELD

The conditions set forth in the CBA provision indicate an intention to limit MMPC’s
liability only to actual expenses incurred by the employees dependents, that is,
excluding the amounts paid by dependents’ other health insurance providers. The
Voluntary Arbitrator ruled that the CBA has no express provision barring claims for
hospitalization expenses already paid by other insurers. Hence, the covered employees
can recover from both. The conditions set forth in the CBA implied an intention of the
parties to limit MMPC’s liability only to the extent of the expenses actually incurred by
their dependents which excludes the amounts shouldered by other health insurance
companies. The condition that payment should be direct to the hospital and doctor implies
that MMPC is only liable to pay medical expenses shouldered by the employees’
dependents. It follows that MMPC’s liability is limited, that is, it does not include the
amounts paid by other health insurance providers. This condition is obviously intended
to thwart not only fraudulent claims but also double claims for the same loss of the
dependents of covered employees. Consequently, MMPSEU cannot rely on the rule that
a contract of insurance is to be liberally construed in favor of the insured. Neither can it
rely on the theory that any doubt must be resolved in favor of labor.

To allow reimbursement of amounts paid under other insurance policies shall

constitute double recovery which is not sanctioned by law. Being a non-life
insurance contract and essentially a contract of indemnity, the CBA provision obligates
MMPC to indemnify the covered employees’ medical expenses incurred by their
dependents but only up to the extent of the expenses actually incurred. This is consistent
with the principle of indemnity which proscribes the insured from recovering greater than
the loss. Indeed, to profit from a loss will lead to unjust enrichment and therefore should
not be countenanced. As aptly ruled by the CA, to grant the claims of MMPSEU will
permit possible abuse by employees.
VECTOR SHIPPING CORPORATION, FRANSISCO SORIANO v. AMERICAN HOME
ASSURANCE COMPANY, SULPICIO LINES, INC.

G.R. No. 159213

July 03, 2013

Insurance Law – Right to Subrogation

FACTS:

Vector was the operator of the motor tanker M/T Vector, while Soriano was the registered
owner of the M/T Vector. Caltex entered into a contract of affreightment with Vector for
the transport of Caltex’s petroleum cargo through the M/T Vector. Caltex insured the
petroleum cargo with respondent for P7,455,421.08 under a Marine Open Policy. In the
evening of 20 December 1987, the M/T Vector and the M/V Doña Paz, the latter a vessel
owned and operated by Sulpicio Lines, Inc., collided in the open sea which led to the
sinking of both vessels. The entire petroleum cargo of Caltex on board the M/T Vector
perished. On 12 July 1988, respondent indemnified Caltex for the loss of the petroleum
cargo in the full amount of P7,455,421.08. On March 5, 1992, respondent filed a complaint
(civil case) against Vector, Soriano, and Sulpicio Lines, Inc. to recover the full amount of
P7,455,421.08 it paid to Caltex.

RTC dismissed the civil case on the ground of prescription. RTC ruled further that since
an action based on quasi-delict must be commenced within four years from the day the
quasi-delict occurred. The tort complained of in this case occurred on 20 December 1987.
The action arising therefrom would under the law prescribe, unless interrupted, on 20
December 1991. The CA reversed the RTC and ruled that Vector and Soriano are
solidarily liable to respondent to for reimbursement of the amount paid to Caltex. The CA
ruled that what existed between Caltex and M/T Vector is culpa contractual based on a
Contract of Affreightment or a charter party, and ;since actions arising from written
contracts must be brought within 10 years from the time the right of action accrued, the
action has not yet prescribed. It ruled that Article 2207 of the Civil Code on subrogation
is explicit that if the plaintiff’s property has been insured, and he has received indemnity
from the insurance company for the injury or loss the insurance company should be
subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. Undoubtedly, the herein appellant has the rights of a subrogee to
recover from M/T Vector what it has paid by way of indemnity to Caltex.
ISSUE/S:

Whether or not the action of the respondent was already barred by prescription

RULING:

NO, the action is not yet barred by prescription.

While the SC agreed with the CA that the action has not yet prescribed, it ruled that the
cause of action was not based on a written contract Contract of Affreightment but
upon an obligation created by law. It came under Article 1144 (2) of the Civil Code.
This is because the subrogation of respondent to the rights of Caltex as the insured was
by virtue of the express provision of law embodied in Article 2207 of the Civil Code and
as a consequence, payment by the insurer to the assured operates as an equitable
assignment to the former of all remedies which the latter may have against the third party
whose negligence or wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any privity of contract or upon written assignment
of claim. It accrues simply upon payment of the insurance claim by the insurer.

Considering that the cause of action accrued as of the time respondent actually
indemnified on July 12, 1988, the action was not yet barred by the time of the filing of its
complaint on March 5, 1992, which was well within the 10-year period prescribed by
Article 1144 of the Civil Code.
 Asian Terminals, Inc. v. Philam Insurance Co., Inc.

G.R. No. 181319 July 24, 2013

VILLARAMA, JR., J.:

Subject: Right of Subrogation

Facts:

Nichimen Corporation shipped to Universal Motors Corporation (Universal Motors) 219

packages containing 120 units of brand new Nissan Pickup Truck Double Cab 4x2
model, without engine, tires and batteries, on board the vessel S/S "Calayan Iris" from
Japan to Manila. The shipment, which had a declared value of US$81,368 or
₱29,400,000, was insured with Philam against all risks. The carrying vessel arrived at
the port of Manila on April 20, 1995, and when the shipment was unloaded by the staff
of ATI, it was found that the package marked as 03-245-42K/1 was in bad order. On
August 4, 1995, Universal Motors filed a formal claim for damages in the amount of
₱643,963.84 against Westwind, ATI (Shipper) and R.F. Revilla Customs Brokerage
(Broker), Inc. When Universal Motors’ demands remained unheeded, it sought
reparation from and was compensated in the sum of ₱633,957.15 by Philam.
Accordingly, Universal Motors issued a Subrogation Receipt dated November 15, 1995
in favor of Philam. On January 18, 1996, Philam, as subrogee of Universal Motors, filed
a Complaint13 for damages against Westwind, ATI and R.F. Revilla Customs Brokerage,
Inc. before the RTC of Makati City, Branch 148.

Issue: Whether or not subrogation took place upon mere payment by the insurer of the
claim of the insured.

Held:

Yes, subrogation took place upon mere payment by the insurer of the claim of the
insured.

The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim. We have held that payment by the insurer to the insured operates as
an equitable assignment to the insurer of all the remedies that the insured may have
against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract. It
accrues simply upon payment by the insurance company of the insurance claim. The
doctrine of subrogation has its roots in equity. It is designed to promote and accomplish
justice; and is the mode that equity adopts to compel the ultimate payment of a debt by
one who, in justice, equity, and good conscience, ought to pay.
 Manila Bankers Life Insurance Corporation v. Aban

G.R. No. 175666

July 29, 2013

Subject/Topic: Insurance Law – Incontestability Clause

Relevant facts:

Delia Sotero (Sotero) took out a life insurance policy from Petitioner, designating
her niece, Respondent Aban, as her beneficiary. Petitioner issued the policy with a face
value of ₱100,000.00, in Sotero’s favor. When, the insurance policy had been in force for
more than 2 years and 7 months, Sotero died. Respondent filed a claim for the insurance
proceeds.

Petitioner conducted an investigation, and found out that the policy was obtained
by fraud since Sotero did not personally apply for insurance and that Respondent was the
one who filed the insurance application, and fraudulently designated herself as the
beneficiary. Because of this, petitioner denied respondent’s claim and refunded the
premiums paid on the policy.

Petitioner filed a civil case for rescission and/or annulment of the policy with the
Makati RTC on the ground that the policy was obtained by fraud, concealment and/or
misrepresentation which renders it voidable. Respondent filed a Motion to Dismiss
claiming that petitioner’s cause of action was barred by prescription. The Makati RTC
issued granted respondent’s Motion to Dismiss finding that Sotero, and not respondent,
was the one who procured the insurance. Petitioner moved for reconsideration, but was
denied. Petitioner filed an appeal with the CA. The CA dismissed the appeal. Petitioner
moved for reconsideration, but the CA denied the same.

Issues relevant to Commercial Law: Whether the rescission of the insurance policy
after the lapse of 2 years and 7 months is proper?

Decision/Held:

NO. Section 48 of the Insurance Code provides that an insurer is given two years
– from the effectivity of a life insurance contract and while the insured is alive – to discover
or prove that the policy is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent. After the two-year period
lapses, or when the insured dies within the period, the insurer must make good on the
policy, even though the policy was obtained by fraud, concealment, or misrepresentation.

Section 48 prevents a situation where the insurer knowingly continues to accept

annual premium payments on life insurance, only to later on deny a claim on the policy
on specious claims of fraudulent concealment and misrepresentation, such as what
obtains in the instant case. For nearly three years, petitioner collected the premiums and
devoted the same to its own profit. It cannot now deny the claim when it is called to
account. Section 48 must be applied to it with full force and effect.

The "incontestability clause" is a provision in law that after a policy of life insurance
made payable on the death of the insured shall have been in force during the lifetime of
the insured for a period of two (2) years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by
reason of fraudulent concealment or misrepresentation of the insured or his agent.

The purpose of the law is to give protection to the insured or his beneficiary by
limiting the rescinding of the contract of insurance on the ground of fraudulent
concealment or misrepresentation to a period of only two (2) years from the issuance of
the policy or its last reinstatement.
 MALAYAN INSURANCE COMPANY, INC. vs. PAP CO., LTD.
G.R. No. 200784
August 7, 2013

Insurance Law - Devices Used for Ascertaining and Controlling Risk and Loss

Facts: Malayan issued a Fire Insurance Policy to PAP Co. for the latter’s machineries
and equipment located at Sanyo Bldg. in PEZA, Rosario, Cavite. The insurance was
procured by PAP Co. for RCBC, the mortgagee of the insured machineries and
equipment. Prior to the expiration of the insurance coverage, PAP Co. renewed the policy.
On October 12, 1997 and during the subsistence of the renewal policy, the insured
machineries and equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance
claim with Malayan but the latter denied the claim upon the ground that at the time of the
loss, the insured machineries and equipment were transferred by PAP Co. to a location
different from that indicated in the policy. The insured machineries were transferred in
September 1996 from the Sanyo Bldg. to Pace Pacific Bldg. which was also in PEZA.
PAP Co. argued that Malayan cannot avoid liability as it was informed of the transfer by
RCBC, the party duty-bound to relay such information.

Issue: Did PAP commit concealment, misrepresentation and breach of an affirmative

warranty under the renewal policy when it transferred the location of the insured
properties without informing Malayan?

Held: Yes. The transfer of the location of the subject properties without notice and without
Malayan’s consent, PAP clearly committed concealment, misrepresentation and a breach
of a material warranty. Section 26 of the Insurance Code provides that “a neglect to
communicate that which a party knows and ought to communicate, is called a
concealment.” Under Section 27 of the Insurance Code, "a concealment entitles the
injured party to rescind a contract of insurance." Moreover, under Section 168 of the
Insurance Code, it provides that “an alteration in the use or condition of a thing insured
from that to which it is limited by the policy made without the consent of the insurer, by
means within the control of the insured, and increasing the risks, entitles an insurer to
rescind a contract of fire insurance”. In the case at bench, all these circumstances are
present. It was clearly established that the renewal policy stipulated that the insured
properties were located at the Sanyo factory, that PAP removed the properties without
the consent of Malayan, and that the alteration of the location increased the risk of loss.
 Alpha Insurance and Surety Co. v. Castor

G.R. No. 198174

September 2, 2013

Insurance Law – Exclusions in the Insurance Contract; Non-Liability of the

Insurance Company

RELEVANT FACTS:

Respondent Arsenia Castor entered in a contract of insurance with petitioner Alpha

Insurance and Surety Co. to insure her motor vehicle, a Toyota Revo DLX DSL, under
Motor Car Policy No. MAND/CV-00186. The contract obligates Alpha to pay Castor
P630,000.00 in case of loss or damage to the said vehicle during the period covered,
which is from Feb. 26 2007 until Feb. 26, 2008. On April 16, 2007, Castor instructed her
driver, Jose Joel Lanuza, to bring the said vehicle to an auto-shop for tune-up. Lanuza,
however, did not return with the said vehicle, prompting Castor to search its whereabouts,
but to no avail. Castor then reported the incident with the police authorities. She also
notified Alpha with the loss and thus demanded payment. Alpha rejected her claim,
arguing that under their contract, any damage caused by the insured, any member of her
family, or any person employed by the insured, the insurer will not be liable; here, since
she employed Lanuza as her driver—thus her employee--she cannot claim from them.
Seeing that her claims remain inheeded, she filed a Complaint for Sum of Money with
Damages against Alpha. The RTC- Quezon City ruled in her favor. The CA affirmed the
RTC ruling. Hence, this Petition.

ISSUE: Should Alpha pay the insurance proceeds to Arsenia Castor?

RULING:

YES. True, it is a basic rule in the interpretation of contracts that the terms of a contract
are to be construed according to the sense and meaning of the terms which the parties
thereto have used. In the case of property insurance policies, the evident intention of the
contracting parties, i.e., the insurer and the assured, determine the import of the various
terms and provisions embodied in the policy. However, when the terms of the insurance
policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree
about the meaning of particular provisions, the policy will be construed by the courts
liberally in favor of the assured and strictly against the insurer. Lastly, a contract of
insurance is a contract of adhesion. So, when the terms of the insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the
insurer from non-compliance with his obligation. Theft perpetrated by a driver of the
insured is not an exception to the coverage from the insurance policy subject of this case.
This is evident from the very provision of Section III – "Loss or Damage." The insurance
company, subject to the limits of liability, is obligated to indemnify the insured against
theft. Said provision does not qualify as to who would commit the theft. Thus, even if the
same is committed by the driver of the insured, there being no categorical declaration of
exception, the same must be covered. Therefore, petitioner cannot exclude the loss of
respondent’s vehicle under the insurance policy under paragraph 4 of "Exceptions to
Section III," since the same refers only to "malicious damage," or more specifically,
"injury" to the motor vehicle caused by a person under the insured’s service. Paragraph
4 clearly does not contemplate "loss of property," as what happened in the instant case.
 FIRST LEPANTO-TAISHO INSURANCE CORPORATION, PETITIONER, VS.
CHEVRON PHILIPPINES, INC., RESPONDENT

G. R. No. 177839
January 18, 2012

Insurance Law - Suretyship

Relevant Facts:

Fumitechniks, distributor of respondent Chevron, had applied for and was issued Surety
Bond by petitioner First Lepanto-Taisho for the amount of P15,700,000.00. As stated in
the attached rider, the bond was in compliance with the requirement for the grant of a
credit line with the respondent "to guarantee payment/remittance of the cost of fuel
products withdrawn within the stipulated time in accordance with the terms and conditions
of the agreement."

Fumitechniks defaulted on its obligation. Respondent notified petitioner of Fumitechniks'

unpaid purchases. A letter was also sent to Fumitechniks demanding that the latter submit
to petitioner a copy of the agreement secured by the Bond, together with copies of
documents such as delivery receipts. Fumitechniks informed petitioner that it cannot
submit the requested agreement since no such agreement was executed between
Fumitechniks and respondent. Consequently, petitioner advised respondent of the non-
existence of the principal agreement as confirmed by Fumitechniks. Petitioner explained
that being an accessory contract, the bond cannot exist without a principal agreement as
it is essential that the copy of the basic contract be submitted to the proposed surety for
the appreciation of the extent of the obligation to be covered by the bond applied for.

Respondent formally demanded from petitioner the payment of its claim under the surety
bond. However, petitioner merely reiterated its position, hence, respondent sued
petitioner for payment. Respondent stated that a careful reading of the surety contract
shows that there is no such requirement of submission of the written credit agreement for
the bond's effectivity.

The RTC ruled that since the surety bond is a mere accessory contract, the bond cannot
stand in the absence of the written agreement secured thereby. On appeal, this was
reversed was the CA, which ruled that petitioner cannot insist on the submission of a
written agreement to be attached to the surety bond considering that respondent was not
aware of such requirement and unwritten company policy.

Issue/s Relevant to Commercial Law:

Whether or not a surety is liable to the creditor in the absence of a written contract with
the principal

Decision/Held:

No, a surety is not liable to the creditor in the absence of a written contract with the
principal. The extent of a surety's liability is determined by the language of the suretyship
contract or bond itself. It cannot be extended by implication, beyond the terms of the
contract. Section 176 of the Insurance Code is clear that a surety contract should be read
and interpreted together with the contract entered into between the creditor and the
principal because it is determined strictly by the terms of the suretyship contract in relation
to the principal contract.

A reading of the Surety Bond shows that it secures the payment of purchases on credit
by Fumitechniks in accordance with the terms and conditions of the "agreement" it
entered into with respondent. The word "agreement" has reference to the distributorship
agreement, the principal contract and by implication included the credit agreement
mentioned in the rider. However, it turned out that respondent has
executed written agreements only with its direct customers but not distributors like
Fumitechniks and it also never relayed the terms and conditions of its distributorship
agreement to the petitioner after the delivery of the bond.

Since a surety contract is merely a collateral one, its basis is the principal contract or
undertaking which it secures. Necessarily, the stipulations in such principal agreement
must at least be communicated or made known to the surety. In this case, the bond
expressly guarantees the payment of respondent's fuel products withdrawn by
Fumitechniks in accordance with the terms and conditions of their agreement. The bond
specifically makes reference to a written agreement. Having accepted the bond,
respondent as creditor must be held bound by the recital in the surety bond that the terms
and conditions of its distributorship contract be reduced in writing or at the very least
communicated in writing to the surety. Hence, in this case, the surety is not liable.
 Florendo vs. Philam Plans

GR No. 186983

February 22, 2012

Facts: Manuel Florendo filed an application for comprehensive pension plan with
respondent Philam Plans, Inc. after some convincing by respondent Perla Abcede. The
plan had a pre-need price of ₱997,050.00, payable in 10 years, and had a maturity value
of ₱2,890,000.00 after 20 years. Aside from pension benefits, the comprehensive pension
plan also provided life insurance coverage to Florendo. This was covered by a Group
Master Policy that Philam Life issued to Philam Plans. Under the master policy, Philam
Life was to automatically provide life insurance coverage, including accidental death, to
all who signed up for Philam Plans’ comprehensive pension plan. If the plan holder died
before the maturity of the plan, his beneficiary was to instead receive the proceeds of the
life insurance, equivalent to the pre-need price. Further, the life insurance was to take
care of any unpaid premium until the pension plan matured, entitling the beneficiary to
the maturity value of the pension plan.

Philam Plans then issued the Pension Plan Agreement to Manuel with Lourdes,
his wife, as beneficiary. Eleven months later, Manuel died of blood poisoning.
Subsequently, Lourdes filed a claim with Philam Plans for the payment of the benefits
under her husband’s plan. Philam Plans denied her claim because they found out that
Manuel was on maintenance medicine for his heart and had an implanted pacemaker.
Further, he suffered from diabetes mellitus and was taking insulin. Lourdes renewed her
demand but it was still rejected by Philam Plans. Thus, she filed an action against Philam
Palns before the RTC. The RTC rendered judgment in favor of Lourdes. The CA reversed
the RTC decision. Hence, this appeal.

Issue: 1. Whether or not the CA erred in finding Manuel guilty of concealing his illness
when he kept blank and did not answer questions in his pension plan application
regarding the ailments he suffered from;

2. Whether or not the CA erred in holding that Manuel was bound by the failure of
respondents Perla and Ma. Celeste to declare the condition of Manuel’s health in the
pension plan application; and
3. Whether or not the CA erred in finding that Philam Plans’ approval of Manuel’s pension
plan application and acceptance of his premium payments precluded it from denying
Lourdes’ claim.

Ruling:

1. Since Manuel signed the application without filling in the details regarding his
continuing treatments for heart condition and diabetes, the assumption is that he
has never been treated for the said illnesses in the last five years preceding his
application. This is implicit from the phrase "If your answer to any of the statements
above (specifically, the statement: I have never been treated for heart condition or
diabetes) reveal otherwise, please give details in the space provided for." But this
is untrue since he had been on "Coumadin," a treatment for venous thrombosis,
and insulin, a drug used in the treatment of diabetes mellitus, at that time. Lourdes
insists that Manuel had concealed nothing since Perla, the soliciting agent, knew
that Manuel had a pacemaker implanted on his chest in the 70s or about 20 years
before he signed up for the pension plan. But by its tenor, the responsibility for
preparing the application belonged to Manuel. Nothing in it implies that someone
else may provide the information that Philam Plans needed. Manuel cannot sign
the application and disown the responsibility for having it filled up. That Manuel still
had his pacemaker when he applied for a pension plan in October 1997 is an
admission that he remained under treatment for irregular heartbeat within five
years preceding that application.
Besides, as already stated, Manuel had been taking medicine for his heart
condition and diabetes when he submitted his pension plan application. These
clearly fell within the five-year period. More, even if Perla’s knowledge of Manuel’s
pacemaker may be applied to Philam Plans under the theory of imputed
knowledge, it is not claimed that Perla was aware of his two other afflictions that
needed medical treatments. Pursuant to Section 27 of the Insurance Code,
Manuel’s concealment entitles Philam Plans to rescind its contract of insurance
with him.

2. Manuel forgot that in signing the pension plan application, he certified that he wrote
all the information stated in it or had someone do it under his direction. As the
Court said in New Life Enterprises v. Court of Appeals: It may be true that x x x
insured persons may accept policies without reading them, and that this is not
negligence per se. But, this is not without any exception. It is and was incumbent
upon petitioner Sy to read the insurance contracts, and this can be reasonably
expected of him considering that he has been a businessman since 1965 and the
contract concerns indemnity in case of loss in his money-making trade of which
important consideration he could not have been unaware as it was precisely the
reason for his procuring the same. The same may be said of Manuel, a civil
 engineer and manager of a construction company. He could be expected to know
that one must read every document, especially if it creates rights and obligations
affecting him, before signing the same. Manuel is not unschooled that the Court
must come to his succor. It could reasonably be expected that he would not trifle
with something that would provide additional financial security to him and to his
wife in his twilight years.

3. The Court cannot agree. The comprehensive pension plan that Philam Plans
issued contains a one-year incontestability period. The above incontestability
clause precludes the insurer from disowning liability under the policy it issued on
the ground of concealment or misrepresentation regarding the health of the insured
after a year of its issuance. Since Manuel died on the eleventh month following the
issuance of his plan, the one year incontestability period has not yet set in.
Consequently, Philam Plans was not barred from questioning Lourdes’ entitlement
to the benefits of her husband’s pension plan.
 MALAYAN INSURANCE v. PHILIPPINES FIRST INSURANCE

G.R. No. 184300

July 11, 2012

Subject/Topic: Insurance Law – Double Insurance; Liability

Relevant Facts:

In 1993, Wyeth procured Marine Policy from respondent Philippines First

Insurance Co., Inc. to secure its interest over its own products. Philippines First thereby
insured Wyeth’s nutritional, pharmaceutical and other products usual or incidental to the
insured’s business while the same were being transported or shipped in the Philippines.
Wyeth executed its annual contract of carriage with Reputable Forwarder Services, Inc.
requiring also Reputable to secure an insurance policy on Wyeth’s goods. Reputable
signed a Special Risk Insurance Policy with petitioner Malayan. During the effectivity of
the Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of Promil
infant formula worth P2,357,582.70 to be delivered by Reputable to Mercury Drug
Corporation in Libis, Quezon City. Unfortunately, the truck carrying Wyeth’s products was
hijacked by about 10 armed men. Philippines First, after due investigation and
adjustment, and pursuant to the Marine Policy, paid Wyeth the indemnity. Philippines First
then demanded reimbursement from Reputable, having been subrogated to the rights of
Wyeth by virtue of the payment. Philippines First instituted an action for sum of money
against Reputable. Reputable impleaded Malayan as third-party defendant in an effort to
collect the amount covered in the SR Policy. Malayan argued that inasmuch as there was
already a marine policy issued by Philippines First securing the same subject matter
against loss and that since the monetary coverage/value of the Marine Policy is more
than enough to indemnify the hijacked cargo, Philippines First alone must bear the loss.

Issues Relevant to Commercial Law:

1. Is there a double insurance?

2. Is Reputable solidarily liable with Malayan?

Decision/Held:

1. No. Section 93 of the Insurance Code, double insurance exists where the same
person is insured by several insurers separately in respect to the same subject and
interest. The requisites in order for double insurance to arise are as follows: 1. The person
insured is the same; 2. Two or more insurers insuring separately; 3. There is identity of
subject matter; 4. There is identity of interest insured; and 5. There is identity of the risk
or peril insured against. In the present case, while it is true that the Marine Policy and the
SR Policy were both issued over the same subject matter, i.e. goods belonging to Wyeth,
and both covered the same peril insured against, it is, however, beyond cavil that the said
policies were issued to two different persons or entities. The interest of Wyeth over the
property subject matter of both insurance contracts is also different and distinct from that
of Reputable’s. The policy issued by Philippines First was in consideration of the legal
and/or equitable interest of Wyeth over its own goods. On the other hand, what was
issued by Malayan to Reputable was over the latter’s insurable interest over the safety of
the goods, which may become the basis of the latter’s liability in case of loss or damage
to the property and falls within the contemplation of Section 15 of the Insurance Code.
Therefore, even though the two concerned insurance policies were issued over the same
goods and cover the same risk, there arises no double insurance since they were issued
to two different persons/entities having distinct insurable interests. Necessarily, over
insurance by double insurance cannot likewise exist.

2. No. Where the insurance contract provides for indemnity against liability to third
persons, the liability of the insurer is direct and such third persons can directly sue the
insurer. The direct liability of the insurer under indemnity contracts against third-party
liability does not mean, however, that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault, since they are being held liable under
different obligations. The liability of the insured carrier or vehicle owner is based on tort,
in accordance with the provisions of the Civil Code; while that of the insurer arises from
contract, particularly, the insurance policy: Suffice it to say that Malayan's and
Reputable's respective liabilities arose from different obligations - Malayan's is based on
the SR Policy while Reputable's is based on the contract of carriage.
 United Merchants Corporations v. Country Bankers Insurance Corporation
G.R. No. 198588
July 11, 2012

Insurance Law – Risks Insured Against

FACTS:
Petitioner, United Merchants Corporation (UMC) is engaged in the business of
selling Christmas lights. It leased a warehouse in Quezon City where its products are
assembled and stored. On September 6, 1995, UMC insured its stocks of Christmas lights
against fire for P15 million, with respondent, Country Bankers Insurance Corp. (CBIC).
The policy was valid until September 6, 1996. On May 7, 1996, UMC and CBIC executed
and Endorsement and Fire Invoice receipts to form part of the Insurance Policy to insure
the stocks against additional perils (Typhoon, flood, earthquake, etc.). The sum was
increased to P50 million valid until January 10, 1997.
On July 3 1996, a fire gutted UMC’s warehouse and an investigation was
conducted. On July 6, UMC submitted its Sworn Statement of Formal Claim, with proof
of its loss, and demanded at least 50% payment of its claim from CBIC. On February
1997, CBIC rejected UMC claim due to breach of Condition no. 15 of the policy which
states that if a claim is fraudulent, any declaration made is false, or if the loss or damage
be occasioned by willful acts, all the benefits under the policy shall be forfeited. Hence,
UMC filed a complaint against CBIC with RTC Manila. CBIC contended UMC’s claim was
tainted with fraud. RTC ruled in favor of UMC as the claim of fraud was not proved by
clear and convincing evidence. On appeal, the CA reversed the decision and ruled that
CBIC’s claim is void and found that the fire was intentional considering the wide array of
evidence.

ISSUE:
Is UMC entitled to claim from CBIC the full coverage of its insurance policy?

HELD:
NO, UMC is not entitled to claim the full coverage of its insurance policy.
In insurance cases, once an insured makes out a prima facie case in its favor, the
burden of evidence shifts to the insurer to controvert the insured’s prima facie case. In
this case, UMC established a prima facie case against CBIC. CBIC does not dispute that
UMC s stocks in trade were insured against fire and that the warehouse was gutted by
fire. However, since CBIC alleged an excepted risk, then the burden of evidence shifted
to CBIC to prove such exception. An insurer who seeks to defeat a claim because of an
exception or limitation in the policy has the burden of establishing that the loss comes
within the purview of the exception or limitation.
In the present case, CBIC failed to discharge its burden of establishing that the
damage or loss was caused by arson. CBIC’s evidence did not prove that the fire was
intentionally caused by the insured. However, CBIC’s failure to prove arson does not
mean that it also failed to prove fraud. Thus, on the allegation of fraud, SC affirmed the
findings of CA. As proof of its loss of stocks in trade UMC submitted its Sworn Statement
of Formal Claim together with several documents, however, the charges for assembling
the Christmas lights and delivery receipts could not support its insurance claim. It has
long been settled that a false and material statement made with intent to deceive or
defraud voids an insurance policy.

Considering all the circumstances, the inevitable conclusion was that UMC padded
its claim and was guilty of fraud, and violated Condition No. 15 of the Insurance Policy.
Thus, UMC forfeited whatever benefits it may be entitled under the Insurance Policy,
including its insurance claim.
 Paramount Insurance Corp. v. Remondeulaz
G.R. No. 173773
November 28, 2012

Subject/Topic: Insurance Law – Compulsory Motor Vehicle

Relevant facts:

On May 26, 1994, respondents Yves and Maria Teresa Remondeulaz insured their
car to petitioner Paramount Insurance Corporation under comprehensive motor vehicle
insurance policy for one year. During the effectively of the insurance, respondents’ car
was unlawfully taken. Upon knowledge thereof, they immediately reported the theft to the
police. In their complaint sheet, respondents alleged that a certain Ricardo Sales took
possession of the subject vehicle to add accessories and improvements thereon,
however, Sales failed to return the subject vehicle within the agreed three-day period.
Respondents also notified petitioner to claim for the reimbursement of their lost vehicle.
However, petitioner refused to pay by reason that the loss was not a peril covered by the
policy. Petitioner argued that the car cannot be classified as stolen as respondents
entrusted the possession thereof to another person. Due to petitioner’s refusal,
respondent spouses filed this case.

Issues relevant to Commercial Law:

Whether or not the loss of respondents’ vehicle falls within the concept of the
"theft clause" under the insurance policy?

Held:

Yes. In People v. Bustinera, this Court had the occasion to interpret the "theft
clause" of an insurance policy. In this case, the Court explained that when one takes the
motor vehicle of another without the latter’s consent even if the motor vehicle is later
returned, there is theft – there being intent to gain as the use of the thing unlawfully taken
constitutes gain. In addition, in Santos vs People, the Court stated that there may be theft
even if the accused has possession of the property. This is when the guilty party was
entrusted only with the material or physical (natural) or de facto possession of the thing,
his misappropriation of the same constitutes theft.

In the instant case, Sales did not have juridical possession over the vehicle
because he was only entrusted with its possession to the extent that Sales will introduce
repairs and improvements thereon, and not to permanently deprive them of possession
thereof. Since, theft can also be committed through misappropriation, then the fact that
Sales failed to return the subject vehicle to respondents constitutes Qualified Theft.
Hence, respondents’’ car is undeniably covered by a Comprehensive Motor Vehicle
Insurance Policy that allows for recovery in cases of theft, petitioner is liable under the
policy for the loss of respondents’ vehicle under the "theft clause."
 NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS) INC v NYK-FILJAPAN
SHIPPING CORPORATION, ET. AL

GR No. 174241

August 24, 2011

Insurance Law - All-risk policy; Claims Settlement

Relevant facts:

Petitioner New World International Development Philppines (New World) bought from
DMT (DMT) Corporation through its agent, Advatech Industries (Advatech) three
emergency generators worth US$721,000. DNT shipped the same from the United
States where it is loaded on a vessel owned and operated by NYK Fil-Japan Shipping
Corporation (NYK) for delivery to petitioner in Manila. It was transshipped in Hong Kong
on another vessel owned by NYK, which subsequently encountered a typhoon while on
its way to Manila. The Manila South Harbor Arrastre received the shipment and upon
inspection, found external damages on two of the generator sets. This was confirmed by
another inspection with petitioner’s insurer, Seaboard-Eastern Insurance (Seaboard)

Since seaboard covered the goods with a marine insurance policy, New World sent a
formal claim dated November 16, 1993. Replying on February 14, 1994, Seaboard
required petitioner to submit an itemized list of the damaged units, parts and
accessories. New World insisted that this is not necessary as the insurance policy did
not require such. With this, Seaboard refused to process the claim.

New World filed an action for specific performance and damages before the RTC. The
latter ruled that Seaboard cannot be faulted for denying the claim against it since New
World refused to submit the itemized lisrt that Seaboard needed in assessing the
damage. Likewise, the belated filing of the complaint prejudiced Seaboard’s right to
pursue a claim in the event of subrogation.

Issues relevant to Commercial Law

 1. Is the requirement of an itemized list of the damaged units reasonable pursuant
to the marine insurance in question?
2. Is Seaboard justified in refusing to settle the claim of New World under the
Insurance policy?

Decision/Held:

1. No. The marine open policy that Seaboard issued to new World was an all-risk
policy. Such a policy insured against all causes of conceivable loss or damage
except when otherwise excluded or when the loss or damage was due to fraud or
intentional misconduct committed by the insured. The policy covered all losses
during the voyage whether or not arising from a marine peril. New World already
complied with such requirement by submitting, among others, copies of the Bill of
Lading, Damage Report, Consumption Report from Customs Examiner, among
others. Seaboard cannot pretend that the above documents are inadequate since
they were precisely the documents listed in its insurance policy. Being a contract
of adhesion, an insurance policy is construed strongly against the insurer who
prepared it.

2. No. Seaboard made an unreasonable demand for an itemized list of the

damaged units, parts, and accessories, with corresponding values when it appeared
settled that New World’s loss was total and when the insurance policy did not
require the production of such a list in the event of a claim.

Section 241 of the Insurance Code provides that no insurance company doing business
in the Philippines shall refuse without just cause to pay or settle claims arising under
coverages provided by its policies. And, under Section 243, the insurer has 30 days
after proof of loss is received and ascertainment of the loss or damage within which to
pay the claim. If such ascertainment is not had within 60 days from receipt of evidence
of loss, the insurer has 90 days to pay or settle the claim. And, in case the insurer
refuses or fails to pay within the prescribed time, the insured shall be entitled to interest
on the proceeds of the policy for the duration of delay at the rate of twice the ceiling
prescribed by the Monetary Board.

Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s
claim as Section 243 required. Under Section 244, a prima facie evidence of
unreasonable delay in payment of the claim is created by the failure of the insurer to
pay the claim within the time fixed in Section 243.Consequently, Seaboard should pay
interest on the proceeds of the policy for the duration of the delay until the claim is fully
satisfied at the rate of twice the ceiling prescribed by the Monetary Board. The term
"ceiling prescribed by the Monetary Board" means the legal rate of interest of 12% per
annum provided in Central Bank Circular 416, pursuant to Presidential Decree
116.9 Section 244 of the Insurance Code also provides for an award of attorney’s fees
and other expenses incurred by the assured due to the unreasonable withholding of
payment of his claim.
 COUNTRY BANKERS INSURANCE CORPORATION, vs. ANTONIO LAGMAN

G.R. No. 165487

July 13, 2011

Subject/Topic: Insurance Law – Surety

FACTS:

Nelson Santos applied for a license with the National Food Authority (NFA) to engage in
the business of storing palay in his warehouse at Barangay Malacampa, Camiling, Tarlac.
Under Act No. 3893 or the General Bonded Warehouse Act, as amended, the approval
for said license was conditioned upon posting of a cash bond, a bond secured by real
estate, or a bond signed by a duly authorized bonding company.

Accordingly, Country Bankers Insurance Corporation issued Warehouse Bond No. 03304
and Warehouse Bond No. 02355 (1989 Bonds) through its agent, Antonio Lagman
(Lagman). Santos was the bond principal, Lagman was the surety and the Republic of
the Philippines, through the NFA was the obligee. In consideration of these issuances,
corresponding Indemnity Agreements were executed by Santos, as bond principal,
together with Ban Lee Lim Santos (Ban Lee Lim), Rhosemelita Reguine (Reguine) and
Lagman, as co-signors. The latter bound themselves jointly and severally liable to Country
Bankers for any damages, prejudice, losses, costs, payments, advances and expenses
of whatever kind and nature, including attorney’s fees and legal costs, which it may
sustain as a consequence of the said bond.

Santos then secured a loan using his warehouse receipts as collateral. When the loan
matured, Santos defaulted in his payment. The sacks of palay covered by the warehouse
receipts were no longer found in the bonded warehouse. By virtue of the surety bonds,
Country Bankers was compelled to pay.

After payment, Country Bankers filed a complaint for a sum of money before the Regional
Trial Court (RTC) of Manila. In his Answer, Lagman alleged that the 1989 Bonds were
valid only for 1 year from the date of their issuance, as evidenced by receipts; that the
bonds were never renewed and revived by payment of premiums; that on November 5,
1990, Country Bankers issued Warehouse Bond No. 03515 (1990 Bond) which was also
valid for one year and that no Indemnity Agreement was executed for the purpose; and
that the 1990 Bond supersedes, cancels, and renders no force and effect the 1989 Bonds.

The bond principals, Santos and Ban Lee Lim, were not served with summons because
they could no longer be found. The case was eventually dismissed against them without
prejudice. The other co-signor, Reguine, was declared in default for failure to file her
answer.
On September 21, 1998, the trial court rendered judgment declaring Reguine and
Lagman jointly and severally liable to pay Country Bankers. Lagman then filed an appeal
to the Court of Appeals which then rendered the assailed decision reversing and setting
aside the Decision of the RTC and ordering the dismissal of the complaint filed against
Lagman saying that 1990 Bond superseded the 1989 Bonds after which, Country Bankers
expectedly assailed the decision of CA to Supreme Court for review on certiorari.

ISSUE:

Whether or not the 1990 bond novates the 1989 bonds as what CA ruled wherein Lagman
cannot be held liable because he was not a signatory of 1990 bond.

RULING:

NO, Section 177 of the Insurance Code expresses that “surety is entitled to payment of
the premium as soon as the contract of suretyship or bond is perfected and delivered to
the obligor. No contract of suretyship or bonding shall be valid and binding unless and
until the premium therefor has been paid, except where the obligee has accepted the
bond, in which case the bond becomes valid and enforceable irrespective of
whether or not the premium has been paid by the obligor to the surety”

Therefore, if the Principal shall well and truly deliver to the depositors PALAY received by
him for STORAGE at any time that demand therefore is made, or shall pay the market
value therefore in case he is unable to return the same, then this obligation shall be null
and void; otherwise it shall remain in full force and effect and may be enforced in the
manner provided by said Act No. 3893 as amended by Republic Act No. 247 and P.D.
No. 4. This bond shall remain in force until cancelled by the Administrator of
National Food Authority.

In case of a continuing bond, the obligor shall pay the subsequent annual premium as it
falls due until the contract of suretyship is cancelled by the obligee or by the
Commissioner or by a court of competent jurisdiction, as the case may be.
By law and by the specific contract involved in this case, the effectivity of the bond
required for the obtention of a license to engage in the business of receiving rice for
storage is determined not alone by the payment of premiums but principally by the
Administrator of the NFA. From beginning to end, the Administrator’s brief is the
enabling or disabling document.

The 1989 bonds may be cancelled only by the obligee, which is the NFA, by the
Insurance Commissioner, and by the court. Lagman therefore is bound by the
Indemnity Agreements in the 1989 bonds which is still in force and not cancelled by the
1990 bond. The Supreme Court GRANTED petition of Country Bankers and SET ASIDE
the decision of Court of Appeals thereby REINSTATING the RTC’s decision.
 THE HEIRS OF GEORGE Y. POE vs. MALAYAN INSURANCE COMPANY, INC.
G.R. No. 156302
April 7, 2009

Subject/Topic: Joint and solidary liability of insurers under third-party liability

insurance

Relevant Facts:
While waiting for a ride to work, George Y. Poe was run over by a ten-wheeler
Isuzu hauler truck owned by Rhoda Santos and then driven by Willie Labrador. The truck
was insured with respondent Malayan Insurance Company, Inc. (MICI). To seek redress
for George’s untimely death, petitioner heirs filed with the RTC a complaint for damages
against Rhoda and respondent MICI. The RTC rendered a decision holding them jointly
and solidarily liable for damages to petitioners. Respondent MICI’s notice of appeal was
denied by the RTC on the ground that it was filed out of time. Upon petition for certiorari,
the CA recalled said denial and directed the lower court to approve respondent’s notice
of appeal. Hence, this petition.

Issues: Should respondent MICI, as insurer of the truck, be held solidarily liable with its
owner for damages awarded to petitioners?

Decision/Held:
Yes, respondent MICI can be held jointly and severally liable with truck owner
Rhoda Santos for the damages awarded to petitioners. It is settled that where the
insurance contract provides for indemnity against liability to third persons, the liability of
the insurer is direct and such third persons can directly sue the insurer. The direct liability
of the insurer under indemnity contracts against third party liability does not mean,
however, that the insurer can be held solidarily liable with the insured and/or the other
parties found at fault, since they are being held liable under different obligations. The
liability of the insured carrier or vehicle owner is based on tort, in accordance with the
provisions of the Civil Code; while that of the insurer arises from contract, particularly, the
insurance policy. The third-party liability of the insurer is only up to the extent of the
insurance policy and that required by law; and it cannot be held solidarily liable for
anything beyond that amount. Any award beyond the insurance coverage would already
be the sole liability of the insured and/or the other parties at fault.

For this rule to apply, however, the insurer must be able to sufficiently establish its
limited liability under its insurance policy. The insurance policy between Rhoda and
respondent MICI, covering the truck involved in the accident which killed George, was
never presented. Without the presentation of the insurance policy, the Court cannot
determine the existence of any limitation on the liability of respondent MICI under said
policy, and the extent or amount of such limitation. Thus, the Court could only conclude
that respondent MICI had agreed to fully indemnify third-party liabilities. Consequently,
there is no more difference in the amounts of damages which petitioners can recover from
Rhoda or respondent MICI; petitioners can recover the said amounts in full from either of
them, thus, making their liabilities solidary or joint and several.
 Heirs of Loreto C. Maramag vs. Maramag
G.R. No. 181132
June 5, 2009

Insurance Law- Parties/Beneficiary; Policy

Facts:

Petitioners were the legitimate wife and children of Loreto Maramag. Respondent Eva De
Guzman Maramag was a concubine of Loreto and a suspect in the killing of the latter,
while respondents Odessa, Karl Brian and Trisha Angellie were the illegitimate children
of Loreto with Eva.

The petition alleged the following: (1) since Eva was a concubine and a suspect in the
killing of Loreto, she is disqualified to receive any proceeds from insurance policy of
Loreto from Insular and Grepalife and (2) the illegitimate children are only entitled to one-
half of the legitime of the legitimate children, and thus, the proceeds released to the said
children were inofficious and should be reduced.

In the Answer of Insular, it admitted that Loreto misrepresented Eva as his legitimate wife
and the respondent children as his legitimate children. When it ascertained that Eva was
not the legal wife, it disqualified her as beneficiary and divided the proceeds among the
respondent children as the remaining designated beneficiaries. On the other hand,
Grepalife alleged that Eva was not designated as an insurance policy beneficiary. Both
Insular and Grepalife countered that the insurance proceeds belong exclusively to the
designated beneficiaries in the policies, and not to the heirs of the insured.

Issue/s:
(1) Who are entitled to the proceeds of the insurance?
(2) Are the legitimate family entitled to the proceeds of the insurance for the
concubine?

Held:

(1) The respondent children (Odessa, Karl Brian and Trisha Angellie) are entitled to the
proceeds of the insurance.

It is very clear under Section 53 of the Insurance Code of the Philippines that the
insurance proceeds shall be applied exclusively to the proper interest of the person in
whose name or whose benefit it is made, unless otherwise specified in the policy. Since
the respondents are the ones named as the primary beneficiary in the insurances taken
by the deceased, the insurance proceeds shall exclusively paid to them. The plaintiffs
cannot invoke the law on donations or rules on testamentary succession in order to defeat
the rights of the respondent. The beneficiary in a contract of insurance is not the donee
spoken in the law of donation. Also, the rules on testamentary succession cannot apply,
for the insurance indemnity does not partake of a donation. As such, the insurance
indemnity cannot be considered as an evidence of the inheritance which can be subject
to collation.

Thus, the respondent children are entitled to the proceeds of the insurance.

(2) No, petitioners are not entitled.

Section 53 of the Insurance Code of the Philippines provides that the insurance proceeds
shall be applied exclusively to the proper interest of the person in whose name or for
whose benefit it is made unless otherwise specified in the policy.

Pursuant thereo, it is obvious that the only persons entitled to claim the insurance
proceeds are either the insure, if still alive; or the beneficiary, if the insured is already
deceased, upon the maturity of the policy. The exception to this rule is a situation where
the insurance contract was intended to benefit third persons who are not parties to the
same in the form of favorable stipulations.

In the present case, the revocation of Eva as a beneficiary in one policy and her
disqualification as such in another are of no moment considering that the designation of
the illegitimate children as beneficiaries in Loreto’s insurance policies remains valid.
Because no legal proscription exists in naming as beneficiaries the children of illicit
relationships by the insured, the shares of Eva in the insurance proceeds, whether
forfeited by the court in view of the prohibition on donations under Article 739 of the Civil
Code or by the insurers themselves for reasons based on the insurance contracts, must
be awarded to the said illegitimate children, the designated beneficiaries, to the exclusion
of petitioners. It is only in cases where the insured has not designated any beneficiary, or
when the designated beneficiary is disqualified by law to receive the proceeds, that the
insurance policy proceeds shall redound to the benefit of the estate of the insured.

Hence, petitioners are third parties to the insurance contracts with Insular and Grepalife
and thus, not entitled to the proceeds thereof.
 VIOLETA R. LALICAN vs.
THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY
THE PRESIDENT VICENTE R. AVILON

G.R. No. 183526

August 25, 2009

Insurance Law – Reinstatement of Policy

Relevant facts:

Eulogio Lalican, the husband of petitioner Violeta, applied for an insurance policy with
Insular Life. Insular Life, through its agent Malaluan issued in favor of Eulogio Policy No.
9011992. Violeta was named as the primary beneficiary.

Under the Policy terms, Eulogio was to pay the premiums on a quarterly basis until the
end of the 20-year period of the policy. There was likewise a grace period of 31 days for
the payment of each premium subsequent to the first. If any premium was not paid on or
before the due date, the policy would be in default, and if the premium remained unpaid
until the end of the grace period, the policy would automatically lapse and become void.

Eulogio paid the premiums but he failed to pay the premium due even after the lapse of
the grace period. The Policy lapsed and became void. He later on submitted an
Application for Reinstatement together with the premium due. Insular Life notified Eulogio
that that his Application for Reinstatement could not be fully processed because he left
unpaid the overdue interest. Thus, Insular Life instructed Eulogio to pay the amount of
interest and to file another application for reinstatement. Eulogio went to Malaluan’s
house to submit the second Application for Reinstatement including the amount
representing payments for the overdue interests. However, it was her husband who
received the second Application for Reinstatement and issued a receipt for the amount
Eulogio deposited. On the same day, Eulogio died of cardio-respiratory arrest secondary
to electrocution. Without knowing of Eulogio’s death, Malaluan forwarded the second
Application for Reinstatement to the Insular Life Regional Office.
Violeta filed with Insular Life a claim for payment of the full proceeds of the policy. The
company informed Violeta that her claim could not be granted since at the time of her
husband’s death, the policy had already lapsed and Eulogio failed to reinstate the same.
Further, the insurer mentioned that the policy would only be considered reinstated upon
approval of the application during the applicant’s “lifetime and good health.”

Issues relevant to Commercial Law

Whether or not Eulogio was able to reinstate the insurance policy before his death.

Decision/Held:

No. To reinstate a policy means to restore the same to premium-paying status after it
has been permitted to lapse. Both the Policy Contract and the Application for
Reinstatement provide for specific conditions for the reinstatement of a lapsed policy.

The Policy Contract between Eulogio and Insular Life identified the following conditions
for reinstatement should the policy lapse:

10. REINSTATEMENT

You may reinstate this policy at any time within three years after it lapsed if the
following conditions are met: (1) the policy has not been surrendered for its cash
value or the period of extension as a term insurance has not expired; (2) evidence
of insurability satisfactory to [Insular Life] is furnished; (3) overdue premiums are
paid with compound interest at a rate not exceeding that which would have been
applicable to said premium and indebtedness in the policy years prior to
reinstatement; and (4) indebtedness which existed at the time of lapsation is paid
or renewed.

Additional conditions for reinstatement of a lapsed policy were stated in the

Application for Reinstatement which Eulogio signed and submitted, to wit:
 I/We agree that said Policy shall not be considered reinstated until this application
is approved by the Company during my/our lifetime and good health and until all
other Company requirements for the reinstatement of said Policy are fully satisfied.

I/We further agree that any payment made or to be made in connection with this
application shall be considered as deposit only and shall not bind the Company
until this application is finally approved by the Company during my/our lifetime and
good health. If this application is disapproved, I/We also agree to accept the refund
of all payments made in connection herewith, without interest, and to surrender the
receipts for such payment.

In the instant case, Eulogio’s death rendered impossible full compliance with the
conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death,
managed to file his Application for Reinstatement and deposit the amount for payment of
his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 could
only be considered reinstated after the Application for Reinstatement had been processed
and approved by Insular Life during Eulogio’s lifetime and good health.

The Court agrees with the RTC that the conditions for reinstatement under the Policy
Contract and Application for Reinstatement were written in clear and simple language,
which could not admit of any meaning or interpretation other than those that they so
obviously embody. A construction in favor of the insured is not called for, as there is no
ambiguity in the said provisions in the first place. The words thereof are clear,
unequivocal, and simple enough so as to preclude any mistake in the appreciation of the
same.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand the
import and meaning of the provisions of his Policy Contract and/or Application for
Reinstatement, both of which he voluntarily signed. While it is a cardinal principle of
insurance law that a policy or contract of insurance is to be construed liberally in favor of
the insured and strictly as against the insurer company, yet, contracts of insurance, like
other contracts, are to be construed according to the sense and meaning of the terms,
which the parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense.
PHILIPPINE HEALTH CARE PROVIDERS, INC., v. COMMISSIONER OF INTERNAL
REVENUE
G.R. NO. 167330 : June 12, 2008
CORONA, J.

Topic: HEALTH CARE AGREEMENT, NON-LIFE INSURANCE

Relevant Facts: Petitioner is a domestic corporation whose primary purpose is "[t]o

establish, maintain, conduct and operate a prepaid group practice health care delivery
system or a health maintenance organization to take care of the sick and disabled
persons enrolled in the health care plan and to provide for the administrative, legal, and
financial responsibilities of the organization."Individuals enrolled in its health care
programs pay an annual membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by its duly licensed physicians,
specialists and other professional technical staff participating in the group practice
health delivery system at a hospital or clinic owned, operated or accredited by it. On
January 27, 2000, respondent Commissioner of Internal Revenue sent petitioner a
formal demand letter and the corresponding assessment notices demanding the
payment of deficiency taxes, including surcharges and interest, for the taxable years
1996 and 1997 in the total amount of P224,702,641.18. Petitioner protested the
assessment in a letter dated February 23, 2000.

Issue Relevant To Commercial Law: Is A Health Care Agreement In The Nature Of

An Insurance Contract And Therefore Subject To The Documentary Stamp Tax (Dst)
Imposed Under Section 185 Of Republic Act 8424 (Tax Code Of 1997)?

Decision/Ruling: Yes. The DST is levied on the exercise by persons of certain

privileges conferred by law for the creation, revision, or termination of specific legal
relationships through the execution of specific instruments.It is an excise upon the
privilege, opportunity, or facility offered at exchanges for the transaction of the
business. In particular, the DST under Section 185 of the 1997 Tax Code is imposed
on the privilege of making or renewing any policy of insurance (except life,
marine, inland and fire insurance), bond or obligation in the nature of indemnity for
loss, damage, or liability.

Under the law, a contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.The event insured against must be designated in the
contract and must either be unknown or contingent. Petitioner's health care agreement
is primarily a contract of indemnity. Contrary to petitioner's claim, its health care
agreement is not a contract for the provision of medical services. Petitioner does not
actually provide medical or hospital services but merely arranges for the same and pays
for them up to the stipulated maximum amount of coverage. It is also incorrect to say
that the health care agreement is not based on loss or damage because, under the said
agreement, petitioner assumes the liability and indemnifies its member for hospital,
medical and related expenses (such as professional fees of physicians). The term "loss
or damage" is broad enough to cover the monetary expense or liability a member will
incur in case of illness or injury. Under the health care agreement, the rendition of
hospital, medical and professional services to the member in case of sickness, injury or
emergency or his availment of so-called "out-patient services" (including physical
examination, x-ray and laboratory tests, medical consultations, vaccine administration
and family planning counseling) is the contingent event which gives rise to liability on
the part of the member. In case of exposure of the member to liability, he would be
entitled to indemnification by petitioner.

The expenses to be incurred by each member cannot be predicted beforehand, if they

can be predicted at all. Petitioner assumes the risk of paying for the costs of the
services even if they are significantly and substantially more than what the member has
"prepaid." Petitioner does not bear the costs alone but distributes or spreads them out
among a large group of persons bearing a similar risk, that is, among all the other
members of the health care program. This is insurance. Similarly, the insurable interest
of every member of petitioner's health care program in obtaining the health care
agreement is his own health. Under the agreement, petitioner is bound to indemnify any
member who incurs hospital, medical or any other expense arising from sickness, injury
or other stipulated contingency to the extent agreed upon under the contract.
 BLUE CROSS HEALTH CARE, INC., vs. NEOMI OLIVARES etal.

G.R. No. 169737

February 12, 2008

Subject/Topic: Pre-existing Condition

Facts: Neomi T. Olivares applied for a health care program with petitioner Blue Cross
Health Care, Inc., a health maintenance firm. For the period October 16, 2002 to
October 15, 2003, she paid the amount of P11,117. The application was approved and
in the agreement it includes ailmemts due to “pre -existing condition” were excluded
from the coverage. After the effectivity of her health insurance, she suffered a stroke
and was admitted at a hospital. When she requested Blue Cross to pay her medical
expenses, the latter refused due to the pending submission of a certificate from her
attending physician, Dr. Edmundo Saniel, that the stroke suffered was not caused by a
pre-existing condition.

She was discharged from the hospital on December 3, 2002. On December 5, 2002, she
demanded that petitioner pay her medical bill. When petitioner still refused, she and her
husband were constrained to settle the bill.They thereafter filed a complaint for collection
of sum of money against petitioner. Petitioner, the health care company rebutted by
saying that the physician didn’t disclose the condition due to the patient’s invocation of
the doctor-client privilege.

Issue: WON petitioner was able to prove that respondent Neomi's stroke was caused
by a pre-existing condition and therefore was excluded from the coverage of the health
care agreement.

Held: No. a health care agreement is in the nature of a non-life insurance. It is an

established rule in insurance contracts that when their terms contain limitations on
liability, they should be construed strictly against the insurer. These are contracts of
adhesion the terms of which must be interpreted and enforced stringently against the
insurer which prepared the contract. This doctrine is equally applicable to health care
agreements.(Philamcare Health Systems, Inc. v. CA)
The agreement defined a pre-existing condition as:

“a disability which existed before the commencement date of membership whose natural
history can be clinically determined, whether or not the Member was aware of such
illness or condition. Such conditions also include disabilities existing prior to
reinstatement date in the case of lapse of an Agreement.” Under this provision,
disabilities which existed before the commencement of the agreement are excluded from
its coverage if they become manifest within one year from its effectivity.

Petitioners still averred that the non-disclosure of the pre-existing condition made a
presumption in its favor. Respondents still maintained that the petitioner had the duty to
prove its accusation.

Petitioner never presented evidence to prove its presumption that the Doctor’s report
would work against Neomi. They only perceived that the invocation of the privilege made
the report adverse to Neomi and such was a disreputable presumption. They should
have made an independent assessment of Neomi’s condition when it failed to obtain the
report. They shouldn’t have waited for the attending physician’s report to come out.

Section 3 (e), Rule 131 of the Rules of Court states:

Under the rules of court, Rule 131, Sec. 3.

Disputable presumptions. ― The following presumptions are satisfactory if

uncontradicted, but may be contradicted and overcome by other evidence:

(e) That evidence willfully suppressed would be adverse if produced.

The exception on presenting evidence applies when the suppression is an exercise

of a privilege. Hence, Neomi had the privilege not to present the Doctor’s report under
the doctor- client privilege.